Perpetual Limited Annual Report 2022

Plain-text annual report

Enduring Prosperity Annual Report 2022 Trust is earned. Our performance 2 4 6 9 Group at a glance Chairman’s Report CEO’s Report Strategy update 10 Business division updates 15 Sustainability at Perpetual Directors’ Report 18 Directors’ Report 27 Remuneration Report Operating and Financial Review 68 Operating and Financial Review Financial Report 105 Primary statements 109 Group performance 120 Operating assets and liabilities 128 Capital management and financing 131 Risk management 140 Other disclosures 154 Basis of preparation 162 Directors’ declaration 170 Securities exchange and investor information Reporting suite Acknowledgement of Country Perpetual presents its 2022 Annual Reporting suite for the year ended 30 June 2022. Enduring Prosperity Annual Report 2022 Corporate Governance Statement 2022 For the Year Ended 30 June 2022 Trust is earned. Annual Report Corporate Governance Statement Sustainability Report Our reporting suite is available online: perpetual.com.au/about/shareholders Perpetual acknowledges Aboriginal and Torres Strait Islander peoples of this nation. We acknowledge the Traditional Custodians of the lands on which our company is located and where we conduct our business. We pay our respects to ancestors, Elders, past and present. Perpetual is committed to honouring Aboriginal and Torres Strait Islander peoples’ unique cultural and spiritual relationships to the land, waters and seas and their rich contribution to society. Our Stretch Reconciliation Action Plan is available online: perpetual.com.au/about/ sustainability/reconciliation-action-plan Perpetual Annual Report 2022 1 About Perpetual Perpetual Limited (ASX:PPT) is an ASX-listed, diversified financial services company that operates globally, providing asset management, financial advisory and trustee services. Perpetual services its client base from offices in Australia as well as its international offices in the United States, United Kingdom, the Netherlands, Singapore and Hong Kong. Our clients include institutions, not-for-profit organisations, small businesses, financial advisers, individuals and families. Our purpose To create enduring prosperity Our vision To be the most trusted in financial services Our values Excellence, integrity, partnership Why invest in Perpetual Unique portfolio of businesses underpins resilience through market cycles Disciplined investment in quality growth opportunities Trusted brand with a strong and established heritage Clear strategy executed at pace and delivering results Strong balance sheet and financial flexibility A highly experienced leadership team focused on delivery Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report2 Group at a glance We are a global business committed to growing sustainably. Underlying profit after tax Total dividends per share 21% on FY21 $148.2m Five-year profile Total revenue1 ($m) Underlying EBITDA2,3,10 ($m) Underlying profit before tax (UPBT)3,4,10 ($m) Underlying profit after tax (UPAT)3,4,10 ($m) Net profit after tax (NPAT)5 ($m) Earnings per share (UPAT)6,10 (cents) Earnings per share (NPAT)6 (cents) Chris Green Chief Financial Officer Return on average shareholders’ equity – UPAT7,10 (%) Return on average shareholders’ equity – NPAT8 (%) Dividend per share – ordinary9 (cents) Total equity at 30 June10 ($m) Assets under management – PAMA11 ($b) Assets under management – PAMI11 ($b) Funds under advice – PP11 ($b) 16% on FY21 $2.09 June 2018 June 2019 June 2020 June 2021 June 2022 531.4 227.0 196.3 139.0 140.2 297 299 21.5 21.6 275 661.1 30.8 – 14.1 512.1 196.0 162.2 115.9 115.9 246 246 17.5 17.5 250 487.6 178.9 136.1 95.1 82.0 200 173 14.4 12.5 155 650.2 214.0 169.3 122.8 72.9 218 130 15.7 9.3 180 748.2 248.5 201.2 148.2 101.2 258 177 16.2 11.0 209 662.2 650.8 907.1 925.8 27.1 – 14.8 22.8 5.6 14.3 24.7 73.6 17.0 21.3 69.1 17.4 The strong FY22 result saw double digit earnings growth across each of our four divisions, while we also invested in growing our business through new capabilities, both in Australia and offshore. Funds under administration – PCT11 ($b) 693.2 764.5 941.9 922.8 1,092.3 Capital expenditure ($m) Market capitalisation ($m) No. of shares on issue – weighted average12 (m) No. of shares on issue at 30 June (m) Share price at 30 June ($) Share price range for year ($ low) ($ high) 28.6 1,937 46.8 46.6 41.60 38.25 56.20 38.8 1,967 47.1 46.6 42.24 29.70 46.11 12.5 26.2 1,406 2,266 47.8 47.4 29.67 20.27 47.27 56.2 56.6 40.05 27.03 40.05 19.1 1,637 57.3 56.7 28.88 27.87 42.27 1. Excludes income from structured investments. 2. EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. June 2020 figure re-presented based on the revised definition of UPAT. Figures prior to June 2020 have not been re-presented. Excludes significant items. 3. 4. 5. Attributable to equity holders of Perpetual Limited. 6. Diluted earnings per share calculated using the weighted average number of ordinary shares and potential ordinary shares on issue. 7. Calculated using underlying profit after tax. 8. Calculated using net profit after tax. 9. Dividends declared with respect to the financial year. 10. June 2021 and June 2020 figures have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. 11. Represents 30 June closing balances. 12. Includes ordinary shares and potential ordinary shares. The weighted average number of ordinary shares for the June 2021 and June 2020 period were adjusted retrospectively in accordance with AASB 133 Earnings per Share following the issues of new shares at a discount to market value during the period. Perpetual Annual Report 2022 FY22 operational highlights 79% of all investment strategies1 outperformed their benchmarks over 3 years2 ~$3b raised in global equities strategies4 3 new Active ETFs 3 3 trading on the ASX in Perpetual Asset Management Australia New milestone for Perpetual Corporate Trust of $1.09t >$1 trillion in Funds under Administration t 2 9 0 $ . 1 2 Y F 2 2 Y F Perpetual Private reports its Group NPS5 9th consecutive year of client net inflows +49 a record result reflecting strong client advocacy +49 2 2 Y F 5 4 + 0 2 Y F 4 4 + 1 2 Y F Our global presence 1 2 3 4 5 6 Head Office Sydney, NSW, Australia 7 Chicago, IL, USA Brisbane, QLD, Australia Canberra, ACT, Australia Melbourne, VIC, Australia Adelaide, SA, Australia Perth, WA, Australia 8 Hong Kong (SAR) 9 Singapore 10 11 Amsterdam, Netherlands London, United Kingdom 1 Boston, MA, USA 2 3 San Francisco, CA, USA Edinburgh, United Kingdom 1 Dallas, TX, USA 1 7 1 2 3 11 10 1. 2. 3. 4. Includes both PAMI and PAMA. As at 30 June 2022. Past performance is not indicative of future performance. See perpetual.com.au for relevant performance. The product disclosure statements (PDS) of any of the capabilities or funds should be considered before deciding whether to acquire or hold units in any fund. Exchange Traded Managed Funds, commonly referred to as Active ETFs. From all sources, all regions, flows are converted monthly using the month-end exchange rate. Includes both Barrow Hanley and Trillium Global Equities strategies. 5. Net Promoter Score. 8 9 6 5 4 2 3 1 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report4 Chairman’s Report We were pleased to be able to report an uplift in revenue, earnings and dividends on the prior year, with the results including strong contributions from PCT and PP and a full year’s contribution from Barrow Hanley. Dear Shareholders, The 2022 financial year was both a year of opportunities and challenges for our business as we continued to drive growth globally. While investment performance in our asset management businesses was strong, we were not immune to the movements in investment markets through the year. Global markets fell 8%1, impacted by the devastating war in Ukraine, as well as rising inflation and the subsequent response from central banks. This impacted our assets under management (AUM), which also declined 8%. 1. MSCI All Countries World Net Total Return Index, expressed in Australian dollars. Importantly, Perpetual’s unique combination of businesses means that we are partly protected from negative market swings by the relative stability of our earnings in our corporate trust business (PCT) and the non-market related earnings within our private wealth business, Perpetual Private (PP). We were pleased to be able to report an uplift in revenue, earnings and dividends on the prior year, with the results including strong contributions from PCT and PP and a full year’s contribution from Barrow Hanley. Financial results and dividends Group revenue increased 20% to $767.7 million, underlying profit after tax (UPAT) was $148.2 million, up 21% on FY21, and net profit after tax (NPAT) was $101.2 million, up 39%, despite a number of one-offs relating to acquisitions of new businesses, including Barrow Hanley, Jacaranda Financial Planning and Laminar Capital. UPAT earnings per share (EPS) was $2.58, up 18%. On the first year anniversary of the completion of the Barrow Hanley Global Investors (Barrow Hanley) transaction in November 2021, we delivered on our promise to achieve in excess of 20% EPS accretion within 12 months of acquisition. It has been unfortunate that this strong outcome has more recently been impacted by negative market movements. Total dividends declared were $2.09 per share, up 16%, and representing a pay out ratio of 80% of UPAT, towards the upper end of the Board’s stated policy to payout 60% to 90% of UPAT. The Board determined to continue with the dividend reinvestment plan, enabling shareholders to reinvest their dividends without transaction costs. Strategy execution The 2022 financial year saw us further progress Perpetual’s strategy to strengthen and grow its business globally. Across the business, there was a significant level of activity aligned to the Group’s strategy for growth. Following the successful acquisition of Barrow Hanley in the 2021 financial year and the establishment of Perpetual’s first international division, we built on our global presence by investing further in investment distribution, marketing and product developments, as well as the central support functions required to implement a global operating model. Perpetual Annual Report 20225 We are committed to growing our products and services that support a low carbon future, and becoming carbon neutral in our operations by FY23. In PP, the Board oversaw the expansion into the pre-retirement segment of the market through the acquisition of Jacaranda Financial Planning in August 2021. The acquisition opens a new channel of client growth and opportunities to expand across the Australian eastern seaboard. PP also continues to play a strong role in the areas of philanthropy and advice to Native Title trusts. As one of the largest managers of philanthropic funds in Australia, in FY22 our Philanthropy team distributed $120 million to not-for-profit and charitable organisations – the largest ever total distribution we have made as a business on behalf of our clients. In PCT, we invested further in our digital capabilities by acquiring Laminar Capital in October 2021. Laminar Capital is a specialist debt markets business with digital-led fixed income solutions. We subsequently created Perpetual Digital, which brings together PCT’s digital services, including Laminar Capital. We are excited about the opportunity it will create for us to further grow our digital capabilities. Subsequent to the end of the financial year, we announced the acquisition of Pendal Group Limited, an ASX-listed asset management business with operations in Australia, Europe, UK and US, and AUM of over $111 billion (as at 30 June 2022) following a period of active discussion and engagement. We consider the transaction to be strategically and financially compelling, and if successful will double our AUM, while also delivering an expected double-digit EPS accretion in year one2. Subject to Pendal shareholders voting in favour of the transaction and other regulatory approvals and conditions, the transaction is expected to complete either late in calendar year 2022 or early 2023. For further information about the transaction please go to our website to read the full announcement (perpetual.com.au/about/ shareholders). I look forward to discussing the acquisition in more detail with shareholders at our Annual General Meeting in October this year. Perpetual’s Sustainability Strategy Post the completion of the financial year, together with this Annual Report and our Sustainability Report, we launched our new Sustainability Strategy, Perpetual’s Prosperity Plan. This is a major milestone for our company which builds on our existing sustainability activities to set out key activities across four key pillars: planet, people, communities and governance. In each of our businesses, we are progressing our thinking and approach to environmental, social and governance (ESG) issues, including how we better serve our clients in this area. We believe we have a critical role to play, not just in our direct impact, but in the investments we make on behalf of clients and how we can help clients better understand and contribute to a more sustainable world. The Board has been closely involved in the development of the commitments within Perpetual’s Prosperity Plan and we look forward to reporting on our progress. Recognising our people On behalf of the Board, I would like to thank our people across the business for their continued dedication and hard work during the year. Our teams have worked collaboratively and flexibly, through continued challenges relating to COVID-19, to ensure we progress our strategy for global growth, and continue to deliver a high standard of service to our clients. I would also like to extend the Board’s thanks to the Executive Committee, led by CEO and Managing Director, Rob Adams, for their dedication and leadership throughout the year. Lastly, on behalf of the Board, the Executive Committee and all our teams, I would like to thank you, our shareholders for your continued support. I would also like to thank my fellow Board members for their strong oversight during the year. The Board is looking forward to meeting shareholders in person at our AGM on 20 October 2022. 2. EPS accretion is on an underlying basis and assumes the full run rate of disclosed synergies. It also assumes a 31 December 2022 implementation. EPS accretion calculated with reference to broker consensus earnings for both Pendal and Perpetual. Note accounting treatment and definitions of UPAT will need to need to be aligned post transaction. Tony D’Aloisio AM Chairman Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 6 CEO’s Report We have made excellent progress in all areas of our strategy, while at the same time reporting solid financial results against a market backdrop that became increasingly volatile throughout the year. Dear Shareholders, The 2022 financial year can be characterised by further investment across all areas of our business, with a focus on strengthening our new international asset management businesses. In 2022, we continued to invest globally to strengthen, expand and create new growth opportunities across our business. We have made excellent progress executing on our strategy, while at the same time reporting strong financial results against a market backdrop that became increasingly volatile throughout the year. Delivering strong financial and operational results Underlying NPAT for the year was $148.2 million, an increase of 21% on FY21 and statutory NPAT was $101.2 million, up 39%. The year included a full 12-month contribution from Barrow Hanley, acquired in November 2020, as well as part contributions from two businesses acquired through the year: Jacaranda Financial Planning in PP, and Laminar Capital in PCT. EPS was $2.58, an increase of 18% on the prior year, enabling an 16% increase in dividends to shareholders, which totalled $2.09 per share. Importantly, we remained well capitalised and as at 30 June 2022 had a conservative gearing ratio of 22%. In our asset management businesses, Perpetual Asset Management International (PAMI) and Perpetual Asset Management Australia (PAMA), our combined AUM was $90.4 billion, lower than the prior year ($98 billion at 30 June 2021), mainly due to declines in global investment markets. Despite these market movements, our investment performance across our asset management businesses has been strong, with our ‘value-style’ in Perpetual Australia equities and in Barrow Hanley, well-suited to current market conditions. In Australia, recognising our strong investment performance and client service, PAMA was the recipient of the “Fund Manager of the Year” award from Zenith1 for the first time in over 10 years – a fantastic result and a credit to the team’s commitment to generating strong results for our clients. A strategic area of focus this year was to further support our asset management businesses to grow AUM by building out a world class distribution team and launching new product structures across key regions. During the year we hired several highly experienced distribution executives dedicated to growing our clients across US institutional, US intermediary and European markets. 1. The Zenith Fund Awards were issued 15 October 2021 by Zenith Investment Partners (ABN 27 103 132 672, AFSL 226872). Perpetual Annual Report 20227 The 2022 financial year can be characterised by further investment across all areas of our business, with a focus on strengthening our new international asset management businesses. We also invested in a number of new product structures to support future growth, including US mutual funds, UCITS2 sub-funds in Europe and Exchange Traded Managed Funds (Active ETFs) in Australia. All of these structures allow investors across key regions to better access our capabilities. While it is still early days, we are already seeing meaningful impact with over A$0.7 billion3 in new monies raised over the year across these structures. PCT continued to demonstrate its leadership position in the debt markets securitisation and managed funds services sectors, providing key components of the essential infrastructure for the financial services industry in Australia. Funds under administration (FUA) grew by 18% to surpass the $1 trillion milestone, ending the year at $1.09 trillion. Recognising the growing digital capabilities within PCT, we created a new division, Perpetual Digital, which combines Laminar Capital, acquired in October 2021, with our existing digital businesses. With four products launched in the year, we are excited about the growth potential of Perpetual Digital. In PP, we are seeing continued inflows of new client monies with FY22 being the ninth consecutive year of positive net flows, which have been further supplemented by the acquisition of Jacaranda Financial Planning in August 2021. Jacaranda expands our services to clients in pre-retirement and provides growth opportunities for PP around Australia. We also saw increasing interest from our clients in our philanthropy services and are growing our Native Title trusts client base. Growing our Environmental, Social and Governance (ESG) capabilities We continue to see strong interest in our ESG capabilities where we are well placed to participate in what we believe to be one of the most important mega-trends of the next decade and beyond. Over the last 12 months, we have attracted over A$1 billion in new client funds into our ESG investment capabilities4, particularly through Trillium Asset Management (Trillium), our dedicated ESG asset manager, and we expect this to grow further over time. We are also developing new solutions across our business, including in PP and PCT, to better serve our clients’ needs in this area. 2. Undertakings for the Collective Investment in Transferable Securities. 3. Conversion rate AUD:USD at 30 June 2022 was 0.68765. 4. Includes Trillium flows from all sources, all regions, Barrow Hanley’s Global Value ESG UCITS (Undertakings for the Collective Investment in Transferable Securities) and flows into PAMA funds which include the Ethical, Ethical Credit and ESG Real Return strategies. Flows are converted using the month-end exchange rate. Group operating revenue $767.7m 20% on FY21 Perpetual Asset Management International Perpetual Asset Management Australia Perpetual Private Perpetual Corporate Trust Perpetual Group Support Services $218.8m $169.0m $211.2m $158.5m $10.2m Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report8 CEO’s Report continued Perpetual’s Prosperity Plan sets out a clear vision and set of commitments to achieve our goals and demonstrate our role in advancing a sustainable and equitable world. perpetual.com.au/ sustainability Perpetual’s Prosperity Plan Perpetual has a deep heritage of responsible investing and ESG principles. This year, we built on the actions we have been taking over many years, including the past 12 months, to launch Perpetual’s Prosperity Plan. The plan sets out a clear vision and set of commitments to achieve our goals and demonstrate our role in advancing a sustainable and equitable world. We have published the plan within our Sustainability Report, which is available on our website at perpetual.com.au/sustainability. We are proud of our work across the business to support our clients to prosper over time. A highlight of the year was achieving a new record Net Promoter Score (NPS) of +49 for the group, which measures our client advocacy. This is an improvement from +44 in 2021 and is a great reflection of the client service in all areas of our business. Our people are clearly our most important asset. With a tight labour market globally, we have further increased our efforts to better attract and retain high quality people. We are really pleased with our progress in this area, which includes introducing a market-leading 20 weeks paid parental leave policy in Australia, doubling the leave for wellbeing and community service to two weeks per year and for the fifth year in a row being awarded an Employer of Choice for Gender Equality by Workplace Gender Equality Agency (WGEA). We have also been implementing our Diversity and Inclusion Strategy, launched in FY21, which aims to empower our people to work with the best, be their best, and work where and how they work best. We believe our trusted brand, combined with our flexible working model, employee benefits and great culture, make Perpetual an attractive place to work for talented people. The high-quality talent who have joined Perpetual over the last year supports this. Proposed acquisition of Pendal Group As referenced in Tony’s letter, subsequent to the end of the financial year, and following a period of active discussion and engagement, we announced the acquisition of Pendal Group Limited, an ASX-listed asset management business with operations in Australia, Europe, UK and US, and AUM over $111 billion. We consider that the transaction is strategically and financially compelling, aligning with our ambitions to grow globally. Combining the businesses will create a global asset management business with significant scale, diversified and high-quality boutique investment strategies, established ESG capabilities and a world-class global distribution network complemented by high-quality wealth management and trustee businesses. Subject to Pendal shareholders voting in favour of the transaction at a Scheme Meeting and other conditions, the transaction is expected to complete late in the calendar year 2022 or early 2023. More information on the transaction is available on our website at perpetual.com.au/about/shareholders. Conclusion It has been an exceptionally busy year for our people. I would like to acknowledge and thank the Board for their guidance and advice as we execute our strategy, and I would like to thank my fellow Executive Committee members and all of our people across the firm for their continued dedication and for delivering another successful year. I would also like to thank our shareholders for supporting Perpetual as we continue to transform the business and drive growth. Across our business we have deep experience and a long history of successfully navigating financial market cycles, including through times of market volatility. We are executing on our strategy to grow our business globally, and we have great momentum across our businesses leading into FY23. Rob Adams CEO and Managing Director Perpetual Annual Report 20229 Strategy Update We are delivering on all areas of our strategy Strategic imperatives Client First Future Fit New Horizons Exceptional products Outstanding service Empowering our people to deliver high performance New capabilities Global footprint FY22 priorities We made excellent progress against the key initiatives we set out to deliver on, or further progress, at the start of the year. Delivered contemporary investment solutions – Active ETFs, ESG development, adding new strategies Invested in refreshed marketing across key high‑performing capabilities Delivering improved digital client experience through innovation and digital solutions Further developed our global operating model to drive efficiencies and support expected global growth Delivering cloud‑based infrastructure, creating a more agile and scalable operating platform Invested in a culture of diversity, inclusion and high performance Further built‑out our global distribution teams and supporting infrastructure across US, UK, Europe and Asia Expanded Jacaranda Financial Planning’s unique distribution model Developed and launched a new corporate sustainability strategy perpetual.com.au/sustainability Continued to embed global governance and risk frameworks perpetual.com.au/corporate-governance Continued to invest in new product and channel development across all regions Remain focused on service excellence Group NPS Score +49 4 4 + 1 2 Y F 2 2 Y F Implemented future ways of working to support engagement and productivity Building‑out additional investment capabilities for both Trillium and Barrow Hanley Focused on inorganic opportunities to add further capabilities and additional growth potential across all divisions Strategic enablers Brand Innovation Leadership Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report10 Business division updates Perpetual Asset Management International Financial performance PAMI completed its first full financial year in FY22 after its establishment in November 2020. PAMI reported underlying profit before tax (UPBT) of $52.9 million, an increase of $12.1 million or 30% on FY21. Revenue of $218.8 million increased by $79.7 million, or 57% on FY21. Both UPBT and revenue increases were largely due to earnings from a full 12 months’ contribution of Barrow Hanley, together with higher average AUM over the period. FY22 expenses of $165.9 million were up 68% on FY21, largely due to a full 12 months of Barrow Hanley operations, the impact of exchange rates, and continued investment in global distribution capability and supporting infrastructure. AUM was $69.2 billion at 30 June 2022, a decrease of $4.5 billion from year end FY21. Average AUM revenue margins in FY22 were 29 bps, remaining relatively stable across all asset classes since the acquisition of Barrow Hanley late in 2021. FY22 business commentary PAMI made excellent progress against its strategy to support Trillium and Barrow Hanley by expanding our global distribution capabilities and supporting infrastructure. We also continued to invest in new product and distribution channel development with a particular focus on key regions including North America, Europe and Asia. Product development achievements include launching seven Barrow Hanley mutual funds on a newly created mutual fund platform in the United States, establishing a UCITS1 platform and launching three sub-funds, which together have $1.2 billion in client investment, and establishing Barrow Hanley’s inaugural New product structures attracting new clients PAMI successfully launched seven mutual funds in FY22, expanding access for Barrow Hanley strategies in the US$30+ trillion US intermediary channel for the first time. Strong demand for our capabilities saw PAMI also launch three ESG-themed UCITS sub-funds in 2H22, providing further investment opportunities for international clients seeking opportunities in the ESG sector as we build our distribution capability in Europe, UK and Asia. Highlighting the strength of our offering, the UCITS sub-funds have attracted more than A$730 million in new client flows. Collateralised Loan Obligation (CLO) equity fund, which is capable of supporting in excess of US$1b of CLOs. Trillium was again recognised as a leader in the ESG sector after winning three global awards throughout the financial year2. This unique position in the market, strength of offering and support from Perpetual’s global distribution capability, is reflected in a strong pipeline of future client investment including the two largest individual institutional investments in Trillium capabilities in their 40-year history. Trillium’s shareholder and social advocacy efforts continued to make an impact and will be strengthened by the appointment of a Director of International Shareholder Advocacy to ensure these efforts extend to non-US based companies over the coming years. In a year of global market uncertainty, investment performance was strong across PAMI, with 96% of strategies outperforming benchmark over three and five years respectively3. 1. 2. 3. UCITS stands for Undertakings for the Collective Investments in Transferable Securities. Trillium named among the 2022 “Best for the World” Certified B Corps, a recognition achieved every year running since 2013; winner of ‘Best ESG Fund Methodology – Global Research’ and ‘Best ESG Fund Performance – Global Reach’ bestowed by WealthBriefing. These awards are not indicative of the future performance of Trillium Asset Management. Gross of fees. Past performance is not indicative of future performance. See barrowhanley.com and trilliuminvest.com for relevant performance. The disclosure documents of any of the strategies should be considered before deciding whether to invest in any strategy. David Lane Group Executive, Perpetual Asset Management International 28.5% total revenue Assets under management $69.1b FY22 FY21 $73.6b Profit before tax $52.9m Trillium named among the 2022 “Best for the World” Certified B Corps, a recognition achieved every year running since 2013 “Best ESG Fund Methodology – Global Reach” and “Best ESG Fund Performance – Global Reach” WealthBriefing Wealth for Good Awards, 2022 Perpetual Annual Report 202211 Perpetual Asset Management Australia Financial performance PAMA reported UPBT of $49.9 million, $7.8 million or 18% higher than FY21. Operating revenue of $169 million was $3.3 million or 2% up on FY21. Factors contributing to the increase of both underlying profit and revenue included higher average equity markets compared to FY21 and improved investment performance. Average AUM revenue margins were 67 basis points (bps), 4 bps lower than FY21, driven by lower performance fees earned. Excluding performance fees earned, underlying average margins of 63 bps remained in line with the prior year. Total AUM as at 30 June 2022 were $21.3 billion, a decrease of $3.4 billion on FY21. Total expenses for PAMA were $119.1 million, 4% lower than the previous year. The decrease was mainly due to lower variable remuneration, including the impact of lower performance fees paid, partially offset by investment in growth initiatives such as the launching of three Active ETFs. Business commentary PAMA continued to invest in our capabilities, products, distribution channels and brands to drive further growth for clients and shareholders. In a year that saw general market sentiment continue to rotate from growth to value equities, PAMA’s disciplined approach to active value investing saw all but one of our Australian equity strategies outperform their respective benchmarks over the financial year1. PAMA was named “Fund Manager of the Year” in the Zenith 2021 Fund Awards2, while the Perpetual Diversified Real Return Fund took out the Multi-Asset Real Return category for a third consecutive year and the Perpetual Share Plus Long Short Fund won the Australian Equities – Alternative Strategies category, highlighting the continued strength of our investment teams and process2. Providing contemporary solutions for investors The Perpetual Ethical SRI Fund (Managed Fund) (ASX:GIVE), Perpetual Global Innovation Share Fund (Managed Fund) (ASX:IDEA) and the Barrow Hanley Global Share Fund (Managed Fund) (ASX:GLOB) were listed on the ASX in FY22. The launch of these three Active ETFs provides investors with simple and easy access to Perpetual’s world-class investment capabilities and aligns with our strategy of providing contemporary investment solutions to meet the evolving needs of our clients. We continue to make excellent progress against our long-term strategy to invest in new products and capabilities, and in FY22 we launched three new Active ETFs that are now easily accessible to investors on the ASX. Underpinning all of this, and central to the ongoing success of our business, is PAMA’s commitment to building and maintaining strong client relationships. In FY22, PAMA achieved our highest ever NPS score, recording +46, up from +38 in FY21 – an outstanding result for the business which reflects the time and effort we invest to help meet the needs of our clients. 1. 2. Past performance is not an indicator of future performance. See perpetual.com.au for relevant performance. The product disclosure statements (PDS) of the strategies should be considered before deciding whether to acquire or hold units in any fund. The Zenith Fund Awards were issued on 15 October 2021 by Zenith Investment Partners (ABN 27 130 132 672, AFSL 226872) and are determined using proprietary methodologies. Amanda Gillespie Group Executive, Perpetual Asset Management Australia 22.0% total revenue Assets under management $21.3b FY22 FY21 $24.7b Profit before tax $49.9m Net Promoter Score +46 highest ever score “Fund Manager of the Year 2021” Zenith Australian Equities – Alternative Strategies Perpetual Share Plus Long Short Fund won the Australian Equities Multi‑Asset Real Return Perpetual Diversified Real Return Fund Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report12 Business division updates continued Perpetual Private Financial performance PP reported UPBT of $44.3 million, $9.3 million or 26% higher than FY21. The increase was mainly driven by higher market-related revenue due to higher average equity markets; positive net flows driven by the growth of the business and acquisitions; higher performance fees due to strong performance of the portfolio; and, non-market related revenue improving with higher insurance revenue partly offsetting the impact of the low interest rate environment. PP generated revenue of $211.2 million, 15% higher than the previous year. Market- related revenue was $153 million, 21% higher than FY21. Expenses of $166.9 million were 12% higher and were largely driven by continued investment in supporting future business growth, the acquisition of Jacaranda Financial Planning, higher variable remuneration and technology investments. Funds under advice (FUA) at the end of FY22 was $17.4 billion, 2% higher than FY21, primarily due to positive net flows supported by organic growth and the acquisition of Jacaranda Financial Planning. Business commentary PP recorded its ninth consecutive year of positive net flows – a tremendous achievement that highlights the continued trust our clients place in us to deliver products, services and solutions to meet their evolving needs. The acquisition of Jacaranda Financial Planning was a significant milestone and supports our strategic growth objectives to expand our client base in the pre-retirement segment. We also launched our new Multi- Family Office, which delivers both financial and non-financial advice services to ultra- high net wealth clients. Both segments have already seen growth and we are well positioned to capitalise on the increasing need for advice clients in the coming years. Addressing the demand for high-quality financial advice Acquired in August 2021, Jacaranda Financial Planning is a fast-growing financial planning business with a high-quality advice model and culture which is closely aligned to Perpetual’s. The integration of Jacaranda’s business, people and processes was delivered ahead of expectations, and supported by PP’s broader team of dedicated specialists and established infrastructure. Plans to expand across the Australian eastern seaboard in FY23 are on track. Together with our adviser growth strategy, which was implemented in 2019 and achieved $1 billion in flows in FY22, Jacaranda will be a key pillar of growth for PP in the years to come. PP continued its strong support of the community, particularly for non-government and charitable organisations, and working with Native Title trusts. As one of the largest managers of philanthropic funds in Australia, FY22 saw our Philanthropy team distribute $120 million to not-for-profit and charitable organisations, with $27 million going to more than 360 organisations through our IMPACT program. This is the largest year of distributions we’ve made as a business on behalf of our clients – a great outcome for many organisations who have been impacted by the pandemic over the past few years. While PP services a broad range of clients, the strength of our client relationships has once again been demonstrated through our client NPS results. In FY22, PP achieved a score of +42, up from +37 in FY21. Our not- for-profit team recorded their highest score in five years and Fordham, our specialised business advisory team, achieved a score of +73. These results are exceptionally high and reflect the deep-rooted relationships that PP has formed over generations. Mark Smith Group Executive, Perpetual Private 27.5% total revenue Funds under advice $17.4b FY22 FY21 $17.0b Profit before tax $44.3m Net Promoter Score +42 +42 Perpetual is a signatory of Philanthropy Australia’s pledge to attempt to double giving in the country by 2030 Perpetual Annual Report 202213 Perpetual Corporate Trust Financial performance PCT – consisting of Managed Funds Services (MFS), Debt Market Services (DMS) and Perpetual Digital – reported UPBT of $72.6 million in FY22, $8.9 million or 14% higher than FY21. Revenue of $158.5 million increased 18%. MFS revenue of $70.3 million was $10.5 million, or 17% higher than the previous year, driven primarily by activity within the real assets sector, managed investment schemes and higher asset prices. DMS revenue of $68.7million was up $6.3 million, or 10%, on FY21. This uplift was driven largely by underlying growth in the securitisation portfolio from new and existing clients. PCT’s newest division, Perpetual Digital, reported revenue of $19.5 million, $6.9 million or 17% higher than FY21. The increase was primarily due to the strategic acquisition of Laminar Capital together with continued growth from new and existing products. Total expenses for PCT in FY22 were $85.9 million, $14.1 million or 21% higher than FY21. The increase in expenses was mainly driven by higher employment and technology costs to support business growth and new digital solutions, together with the operating expenses of Laminar Capital. Business commentary PCT delivered another year of consistent and sustainable growth. Total FUA reached a major milestone in FY22, with the business now administering more than $1 trillion ($1.09 trillion as of 30 June) for the first time. The acquisition of Laminar Capital in FY22 led to the creation of Perpetual Digital. This new division is already performing ahead of expectations, with three new products launched and $3.98 trillion in assets under administration across its four business lines. Supporting the digital transformation of the banking and finance industry Consistent with our strategy to grow our digital capabilities, Perpetual acquired Laminar Capital, a specialist debt markets, advisory and SaaS business, in October 2021. The acquisition led to the creation of a new business division in PCT – Perpetual Digital. Perpetual Digital combines Perpetual’s existing holistic and growing range of innovative SaaS solutions and data services products with Laminar Capital’s specialist offerings. Since its inception in 2009, the team at Laminar has developed a strong reputation as a trusted adviser, with deep client relationships and expertise as a treasury and debt markets specialist, digitally enabled through their proprietary SaaS platform Treasury Direct. Acquiring Laminar provides a unique opportunity to accelerate PCT’s position as a specialist fiduciary and digital solutions provider to the banking and financial services industry. Our core business divisions – MFS and DMS – continued their strong growth trajectory. The MFS business, which provides trustee, custody and responsible entity (RE) services to a range of Australian and global financial institutions, reached two important milestones in FY22. FUA in our Custody segment grew to $212 billion, and our Wholesale Trustee FUA is now over $100 billion. In our DMS division, FUA was up 18% on FY21 to $663 billion. Through the year our commitment to providing service excellence did not waver. PCT delivered an NPS score of +61, up from +58 last year. Recognition of PCT as a leading corporate trustee business was highlighted by once again being awarded “Trustee of the Year” in the KangaNews Awards1 – for the sixth consecutive year. 1. Trustee of the Year awarded by KangaNews. All copyrights reserved 2021. Richard McCarthy Group Executive, Perpetual Corporate Trust 20.6% total revenue Funds under administration $1,092.3b FY22 FY21 $922.8b Profit before tax $72.6m Net Promoter Score +61 2021 Trustee of the Year KangaNews1 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report14 Business division updates continued Supporting a growing global business As a growing global business with offices across Australia and internationally in Asia, Europe and North America, the way we operate is crucial to providing a seamless experience and quality outcome for our clients and our people. Risk and Compliance Perpetual’s Legal, Audit, Risk, Compliance and Company Secretariat & Governance (LARCC) is a dedicated support function led by Chief Risk Officer Sam Mosse. LARCC is responsible for the design, implementation, maintenance and assurance of Perpetual’s risk and compliance frameworks, governance processes, programs, policies and tools to help manage the key risks faced by the Group. In a year of regulatory changes, the teams within LARCC responded by delivering customer-centric solutions to new and updated regulatory guidance across breach reporting, complaints handling and design and distribution obligations. LARCC addressed the increasing geopolitical risk real time through sanctions compliance and asset risk analysis. A key pillar of Perpetual’s growth strategy includes exploring both local and global acquisition opportunities. LARCC is deeply involved in the legal, governance, risk and compliance elements of acquisitions including due diligence, licensing disclosure, reporting and meeting obligations. In providing this support, the primary objective is to ensure that acquisitions deliver for our business, clients and shareholders. During FY22, LARCC provided services to support the acquisition of Jacaranda Financial Planning (August 2021) and Laminar Capital (October 2021). The team also plays a vital role in broadening our current asset management distribution capabilities both in Australia and overseas. In FY22 numerous risk management and compliance frameworks were established, along with continued work towards regulatory permissions and licences in multiple overseas jurisdictions including Hong Kong and the Netherlands. With an increasing business-wide focus on ESG and Sustainability, LARCC embedded broader ESG and Sustainability risk management and control processes across all Perpetual business units, including our global fund managers Trillium Asset Management and Barrow Hanley. Client solutions and operations Perpetual’s Client Solutions (PCS) team, led by Chief Operating Officer Amanda Gazal, aims to champion and enhance our internal and external clients’ experience and redefine how our business is run using technology, data and uplifted processes. PCS continued its implementation of a Microsoft-first strategy, and in the first half of FY22 commenced programs of work, with the main focus on replacing legacy technology and continuing to move core technology infrastructure to the Azure cloud. Our ongoing strategic partnership with Microsoft has helped create a holistic and secure digital platform that will serve the needs of the entire organisation, all around the world, expediting access to information and streamlining operations. Combined with material improvements in information security we are positioning ourselves to more nimbly respond to future growth opportunities. The appointment of a new Chief Technology Officer, Craig Squires, in March 2022 will significantly enhance our technology maturity. PCS continues to focus on driving benefits from key strategic partners, and in FY22 successfully transitioned to one of the world’s leading custodians, State Street. This transition will significantly strengthen and contemporise the products and services portfolio we offer our clients and our people. PCS also provided significant operational support to PAMI and PAMA following the launch of UCITS sub-funds offshore and the listing of Active ETFs in Australia, as well as further integrating Jacaranda Financial Planning into the Group. Sam Mosse Chief Risk Officer Amanda Gazal Chief Operating Officer, Perpetual Client Solutions Provided support services for the acquisition of Jacaranda Financial Planning and Laminar Capital Embedded ESG risk and control processes across all Perpetual businesses Transitioned to State Street, one of the world’s leading custodians, to contemporise products and services for our clients and people Perpetual Annual Report 202215 Sustainability at Perpetual For more than 135 years, Perpetual has helped protect and grow our clients’ wealth and prosperity. Our ongoing commitment to building a prosperous future For more than 135 years, Perpetual has helped protect and grow our clients’ wealth and prosperity. Throughout our history, built from strong foundations as a trustee company, we have supported our clients and our communities through periods of great change, volatility and prosperity. We are deeply proud of our heritage and as a growing global business we realise the crucial role we play in creating a prosperous and sustainable future for our clients, our people and the communities we are part of. If we want to ensure a prosperous world, we must first build a sustainable world. During FY22, following extensive client and stakeholder engagement, we developed Perpetual’s Prosperity Plan – a comprehensive, business-wide sustainability strategy that sets out a clear vision and set of commitments to achieve our goals, demonstrating our role in advancing a sustainable and equitable world, and upholding the high standards of governance we hold ourselves to every day. Perpetual’s Prosperity Plan is focused on four key pillars Planet People Accelerate the low carbon transition Help our clients navigate the risks and opportunities of a low carbon future and reduce our own carbon footprint. Key commitments: Grow our products and services that support a low carbon future Carbon neutral operations by FY23 100% renewably powered operations by FY25 Champion inclusion and high performance Create a harmonious, diverse and inclusive workplace culture that enhances wellbeing and supports each of our people to bring their best. Key commitments: 40%+ women in leadership by FY24 80%+ of our people feel that Perpetual welcomes diverse people and views by FY24 75%+ of our people feel that Perpetual supports their wellbeing by FY24 Communities Governance Support strong communities Leverage our services, time and philanthropy to support not-for-profit organisations, give back to communities, and help advance First Nations prosperity. Key commitments: Deliver our 2021-23 Stretch Reconciliation Action Plan Give equivalent to 1% of profit through community giving and volunteering Launch a Global Human Rights Framework by FY25 Set the highest standard Draw on our trusted brand and deep history, to uphold best practices, accountability and integrity in all we do. Key commitments: Increase ESG skills and capabilities across our business Uphold our values and always act with integrity Maintain strong client advocacy with 40+ NPS We launched this sustainability strategy in our FY22 Sustainability Report and look forward to reporting on the strategy’s progress and outcomes over the coming years. A selection of the 35 commitments in our sustainability strategy are highlighted on the following pages. For more information on our sustainability strategy and activities see our sustainability reporting at perpetual.com.au/about/sustainability. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 16 Sustainability at Perpetual continued Accelerating the low carbon transition Championing inclusion and high performance We support our people to thrive at both work and home, as we recognise that our people have full lives, which impact on their experience at work. A number of new initiatives were announced in FY22 including an industry-leading, gender-neutral 20-week paid parental leave program, and a new leave benefit offering our people 10 additional days of community and wellbeing leave each year, up from five previously. In June 2022, we launched LinkedIn Learning for our employees in Australia, giving our people access to more than 6,000 courses designed to support their ongoing education and professional development. This will also be extended to Trillium and Barrow Hanley in the first half of FY23. Building a diverse and inclusive workplace is a key priority for Perpetual, and in FY22 we were recognised by the WGEA as an Employer of Choice for Gender Equality, which we have held since 2018. Currently, 34% of our senior leader cohort across our global businesses are women, which is down 36% on the previous year. We are actively seeking to increase the representation of women in investment management and financial advice roles and are encouraging women early in their career to pursue roles in finance through our ongoing collaboration with Future IM/Pact, and a new partnership with F3 – Future Females in Finance, where we hosted 10 university students to complete a six-week work experience program. We also entered into a new partnership with Out Leadership to help to remove the barriers facing LGBTQ+ people in the workplace. Transitioning to a more sustainable planet will transform economies across the globe. As a diversified multi-boutique and global business, each of our asset managers have their own investment philosophies and approaches to managing climate risk and opportunities for our clients. Trillium, a pioneer in sustainable investing, was among the first group of signatories globally to publish their 2030 interim net zero target in November 2021 in the lead up to the United Nations Climate Change Conference (COP26) in Glasgow. Their interim target is for 75% of the holdings of Trillium-advised larger cap-equity strategies to commit to set science-based targets for reducing their greenhouse gas emissions by 2030. As at 30 June 2022, 60% of Trillium’s investments in larger cap equities had committed to setting such targets, up from 15% on 31 December 2019, which is the baseline for the target. During FY22, Barrow Hanley provided additional data on climate risks and carbon emissions to their clients. The firm believes setting a science-based target can be an important measure of the commitment a company is making to demonstrate progress toward a low-carbon future. The lack of an ambitious target is often a basis for engagement. The PAMA Australian Equities team conducted an extensive review in FY22 of how prepared companies in the ASX 300 are for the low a carbon transition. A proprietary net zero scoring framework has also been developed to assess climate-related risks and opportunities for listed companies going forward. It is also important that we take steps to reduce the environmental footprint from our operations and we have recently appointed a new Sustainability and Environment Manager to drive forward this agenda. Paul Chasemore Executive General Manager, People and Culture Building a diverse and inclusive workplace is a key priority for Perpetual, and in FY22, we were recognised by the Workplace Gender Equality Agency (WGEA) as an Employer of Choice for Gender Equality, which we have held since 2018. Perpetual Annual Report 202217 Over the course of the year, Trillium supported Native American activists who were seeking to change the disparaging name and logo of the Kansas City Football team through an engagement with a key commercial sponsor of the team. We fully support the engagement our US-based firms, particularly Trillium, have with these communities. Setting the highest standard Strong client relationships are built on foundations of trust, longevity and integrity. In FY22, Perpetual recorded our highest ever NPS of +49, up from +44 in FY21. This demonstrates the strong relationships we continue to have with our clients, which has been of even greater importance in another year of uncertainty due to the COVID-19 pandemic. Importantly, in FY22, Perpetual continued to deliver ESG products and solutions that meet the growing and evolving needs of our clients. Strong demand for our ESG capabilities saw PAMI launch three ESG UCITS sub-funds in Europe, and have one other authorised, during the year, while PAMA launched our first Active ETF, the Perpetual Ethical SRI Fund (Managed Fund) (ASX: GIVE), on the ASX – providing investors an easy and accessible way to access our world-class investment capabilities. Supporting strong communities Perpetual is one of the largest managers of philanthropic funds in Australia, and our commitment to helping communities grow and prosper dates back to the 1890s, when we became the trustee of one of Australia’s first charitable trusts. FY22 saw our clients distribute more than $120 million of their philanthropic funds to not-for-profit and charitable organisations. Over the past 11 years, Perpetual has helped our clients distribute more than $1 billion to the community sector. We partnered with Stanford University to create a philanthropy toolkit to help philanthropists assess not-for- profits and identify the ones that are best aligned to the causes that matter to them. To hold ourselves accountable for our community giving, we have made a commitment to give equivalent to 1% of our underlying profit before tax through community giving and volunteering. We are aligning our measurement of community giving with the Business for Societal Impact framework, which is a globally recognised standard. Based on this framework, our total community giving and volunteering was equivalent to nearly $2.4m, which was 1.2% of FY22 UPBT. As trustee of many Native Title agreements, our Native Title team works with Aboriginal and Torres Strait Islander communities to help create intergenerational wealth. One such project working with a Pilbara-based Native Title group, has helped to increase home ownership in one Pilbara community from 2% in 2019 to 30% in June 2022. Our support for First Nations Peoples also extends to our global businesses. Community contributions equivalent to $2.4m in total community giving and volunteering Net Promoter Score +49 +45 +44 0 2 Y F 1 2 Y F 2 2 Y F See our full Sustainability Report for 2022 Enduring Prosperity Sustainability Report 2022 Trust is earned. perpetual.com.au/ sustainability Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report18 Directors The Directors present their report together with the consolidated financial report of Perpetual Limited, (‘Perpetual’ or the ‘Company’) and its controlled entities (the ‘consolidated entity’), for the year ended 30 June 2022 and the auditor’s report thereon. Tony D’Aloisio AM Chairman and Independent Director Mona Aboelnaga Kanaan Independent Director Gregory Cooper Independent Director BA LLB (Hons) (Age 72) BSc (Econ) MBA (Age 54) FIA, FIAA, BEc (Actuarial Studies) (Age 51) Mr D’Aloisio has been an Independent Non-Executive Director of Perpetual since December 2016. Mr D’Aloisio became Chairman of Perpetual in May 2017. Skills and experience Mr D’Aloisio has held leadership roles in listed and non-listed companies. He was CEO and MD at the Australian Securities Exchange from 2004–2006. Mr D’Aloisio was Chief Executive Partner at Mallesons Stephen Jaques between 1992–2004 having first joined the firm in 1977. Mr D’Aloisio was appointed a Commissioner for the Australian Securities and Investments Commission (ASIC) in 2006 and Chairman in 2007 for a four-year term. He was Chairman of the (International) Joint Forum of the Basel Committee on banking supervision from 2009–2011. Most recently Mr D’Aloisio was Chairman of IRESS Limited (technology). He was a Non-Executive director of PPB Advisory Pty Ltd 2012–2016 (financial reconstructions) and a Non-Executive Director of ASX-listed Boral Limited 2002–2004 as well as a director of the Business Council of Australia 2003–2006 and the World Federation of Exchanges 2004–2006. He was President of the Australian Winemakers Federation 2012–2016. Currently Mr D’Aloisio is also a Director of the Aikenhead Centre for Medical Discovery Pty Ltd and President of the European Capital Markets Cooperative Research Centre as well as Chairman of Aircellar Pty Ltd. Listed company directorships held during the past three financial years: – IRESS Limited (from June 2012 to May 2021) Board Committee memberships – Chairman of the Nominations Committee Ms Aboelnaga Kanaan has been an Independent Non-Executive Director since 2021. Skills and experience Based in New York, USA, Ms Aboelnaga Kanaan is a seasoned director, entrepreneur and asset management executive having held leadership positions over a distinguished career spanning more than 30 years. She is currently the Managing Partner of K6 Investments LLC, an independent private equity firm which she founded in 2011. Previously, Ms Aboelnaga Kanaan served as President and CEO of Proctor Investment Managers, a firm she co-founded in 2002 to acquire and scale traditional and alternative asset managers. Ms. Aboelnaga Kanaan sold the firm to National Bank of Canada in 2006, acquired affiliates managing nearly $14 billion in assets under management and continued as Proctor’s President and CEO until 2013. With expertise in public as well as private financial services firms, Ms Aboelnaga Kanaan is currently a Director of Webster Financial Corporation (WBS), FinTech Acquisition Corp VI (Nasdaq: FTVI) and has served as a Board Member of a number of traditional and alternative asset managers in the United States including, Siguler Guff’s BDC and Peridiem Global Investors. With a commitment to education and economic empowerment, she also has extensive non-profit board experience in those fields including as an investment committee member of sizeable educational endowments. Listed company directorships held during the past three financial years – Webster Financial Corporation (from February 2022 following merger with Sterling Bancorp) – Fintech Acquisition Corp. VI (from February 2021 to present) Board Committee memberships – Member of the Investment Committee – Member of the People and Remuneration Committee Mr Cooper has been an Independent Non-Executive Director of Perpetual since September 2019. Skills and experience Mr Cooper has more than 26 years of global investment industry experience in the UK, Asia and Australia with a deep understanding of international funds management. Mr Cooper brings strong financial services and strategy expertise to the Perpetual Board predominantly gained from his executive career at Schroders Australia where he was the Chief Executive Officer from 2006 to 2018 with responsibility for Schroders’ institutional business across Asia Pacific and then globally, and his current non-executive career across the superannuation, banking and technology sectors. Mr Cooper currently serves as a Non-executive Director of NSW Treasury Corporation, where he also chairs the Investment Committee. He is currently the Chairman of Avanteos Investments Limited (part of the Colonial First State Group). Mr Cooper is a Non-Executive Director of Australian Payments Plus Limited and its subsidiaries/related entities; Catholic Church Insurance, OpenInvest Holdings, the Australian Indigenous Education Foundation and EdStart. Previously Mr Cooper acted as a Non-executive Director to the Financial Services Council and held the position of Chairman from 2014 to 2016. Board Committee memberships – Member of the Audit, Risk and Compliance Committee – Member of the Investment Committee – Member of the People and Remuneration Committee Directors’ Reportfor the year ended 30 June 2022Perpetual Annual Report 202219 Nancy Fox AM Independent Director Ian Hammond Independent Director Fiona Trafford-Walker Independent Director BA JD (Law) FAICD (Age 65) BA (Hons) FCA FCPA FAICD (Age 64) BEc, M. Fin (Age 55) Ms Fox has been an Independent Non-Executive Director of Perpetual since September 2015. Mr Hammond has been an Independent Non-Executive Director of Perpetual since March 2015. Ms Trafford-Walker has been an Independent Non-Executive Director of Perpetual since December 2019. Skills and experience Ms Fox has more than 30 years’ experience in financial services, securitisation and risk management gained in Australia, the US and across Asia. A lawyer by training, she was Deputy Chairman of the Board of Taronga Conservation Society Australian until 2021, Managing Director for Ambac Assurance Corporation from 2001 to 2011 and previously Managing Director of ABN Amro Australia from 1997 to 2001. Ms Fox brings to the Board a deep knowledge of developing and leading successful financial services businesses and extensive experience with securitisation, regulatory frameworks, risk management and governance. She is currently Chairman of Perpetual Equity Investment Company Limited, a Non-executive Director of Lawcover Pty Ltd, Mission Australia, Aspect Studios Pty Ltd and O’Connell Street Associates. Listed company directorships held during the past three financial years – Perpetual Equity Investment Company Limited (from July 2017 to present) Board Committee memberships – Chair of the People and Remuneration Committee – Member of the Audit, Risk and Compliance Committee Skills and experience Mr Hammond was a partner at PricewaterhouseCoopers for 26 years and during that time held a range of senior management positions including lead partner for several major financial institutions. He has previously been a member of the Australian Accounting Standards Board and represented Australia on the International Accounting Standards Board. Mr Hammond has a deep knowledge of the financial services industry and brings to the Board expertise in financial reporting, risk management, and mergers and acquisitions. He has provided extensive advisory and audit services to PwC’s domestic and global clients in banking, insurance and asset management. Mr Hammond is a Non-Executive Director of Suncorp Group Limited, and Venues NSW, and a Board Member of not-for-profit organisations including Mission Australia and Chris O’Brien Lifehouse. Listed company directorships held during the past three financial years – Suncorp Group Limited (from October 2018 to present) Board Committee memberships – Chairman of the Audit, Risk and Compliance Committee – Member of the Investment Committee – Member of the Nominations Committee – Member of the Nominations Committee Skills and experience Ms Trafford-Walker has over 30 years of senior executive and business management experience within the investment industry, bringing extensive knowledge of investment management and a strong institutional and international perspective to the Perpetual Board. Ms Trafford-Walker began her career in institutional investment consulting in 1992, and until December 2019 was an Investment Director at Frontier Advisors (Frontier). At various times during her tenure, she was responsible for the original development and on-going management of Frontier’s business, as well as providing investment and governance advice to a number of the firm’s clients. Currently Ms Trafford-Walker is a Non-Executive Director of Victorian Funds Management Corporation, Prospa Group Ltd, Link Administration Holdings, Eclipx Group, an Investment Committee Member of the Walter and Eliza Hall Institute and a Strategic Advisor to the QE Advisory Board. Listed company directorships held during the past three financial years – Prospa Group Limited (from March 2018 to present) – Link Administration Holdings (from October 2015 to present) – Eclipx Limited (from July 2021 to present) Board Committee memberships – Member of the Investment Committee – Member of the People and Remuneration Committee Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report20 P Craig Ueland Independent Director Rob Adams Chief Executive Officer and Managing Director Sylvie Dimarco Company Secretary BBus (Accounting) (Age 56) LLB, GradDipAppCorpGov, FGIA, FCG, GAICD Mr Adams has been the Chief Executive Officer and Managing Director of Perpetual since September 2018. Skills and experience Mr Adams is a proven financial services business leader with over 30 years’ experience locally and globally across funds management, financial advice and fiduciary services. Before Perpetual, Mr Adams was Head of Pan-Asia and a member of the Global Executive Committee of Janus Henderson where he had been for six years. Prior to that, he was Chief Executive of Challenger Funds Management, and was previously CEO of First State Investments UK. Mr Adams holds a Bachelor of Business degree (Accounting). He is Chairman of the Abbotsleigh Foundation. Ms Dimarco was appointed Company Secretary of Perpetual in April 2020. Skills and experience Ms Dimarco joined Perpetual in 2014 and is currently Head of Company Secretariat & Governance at Perpetual. She is also Company Secretary of Perpetual Equity Investment Company Limited (ASX: PIC) and all of Perpetual’s subsidiary boards. She is a member of the Perpetual Limited Continuous Disclosure Committee. Ms Dimarco has over 15 years’ experience in company secretariat practice and administration for listed and unlisted companies. Before Perpetual, she practised as a commercial lawyer in Sydney and Canberra for 11 years, working in predominantly mid-sized law firms. Ms Dimarco holds a Bachelor of Laws degree from the University of Sydney and has completed the Governance Institute of Australia’s Graduate Diploma of Applied Corporate Governance. Ms Dimarco is a Graduate of the Australian Institute of Company Directors course. BA (Hons and Distinction) MBA (Hons) CFA (Age 63) Mr Ueland has been an Independent Non-Executive Director of Perpetual since September 2012. Skills and experience Mr Ueland was formerly President and Chief Executive Officer of Russell Investments, a global leader in multi-manager investing. He previously served as Russell’s Chief Operating Officer, Chief Financial Officer, and Managing Director of International Operations, which he led from both London and the firm’s headquarters in the US. Earlier in his career he opened and headed Russell’s first office in Australia. Mr Ueland brings to the Board detailed knowledge of global financial markets and the investment management industry, gleaned from more than 20 years as a senior executive of a major investment firm, along with a strong commitment to leadership development and corporate strategy development and execution. Mr Ueland is a Committee member of the Endowment Investment Committee for The Benevolent Society and is a Board Member of the Stanford Australia Foundation and the Supervisory Board of OneVentures Innovation and Growth Fund II. Board Committee memberships – Chairman of the Investment Committee – Member of the Audit, Risk and Compliance Committee – Member of the Nominations Committee Directors’ Reportfor the year ended 30 June 2022Perpetual Annual Report 202221 Directors’ meetings The number of Directors’ meetings which Directors were eligible to attend (including meetings of Board Committees) and the number of meetings attended by each Director during the financial year to 30 June 2022 were: BOARD AUDIT, RISK AND COMPLIANCE COMMITTEE (ARCC) PEOPLE AND REMUNERATION COMMITTEE (PARC) INVESTMENT COMMITTEE NOMINATIONS COMMITTEE ELIGIBLE TO MEMBER ELIGIBLE TO MEMBER ELIGIBLE TO MEMBER ELIGIBLE TO MEMBER ELIGIBLE TO ATTEND ATTENDED ATTEND ATTENDED ATTEND ATTENDED ATTEND ATTENDED ATTEND ATTENDED 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23 – – 6 6 6 – 6 – – – 6 6 6 – 6 – – 4 7 7 – 7 – – – 4 7 7 – 7 – – – 4 6 – 6 6 6 – – 4 6 – 6 6 6 – – – – – – – – – – – – – – – – – DIRECTOR Tony D'Aloisio Mona Aboelnaga Kanaan Gregory Cooper Nancy Fox Ian Hammond Fiona Trafford-Walker Craig Ueland Rob Adams Directors from time to time may and do attend committee meetings even though they may not be a member of that committee. Corporate Governance Statement Perpetual’s Corporate Governance Statement, which meets the requirements of ASX Listing Rule 4.10.3, is located on the Corporate Governance page of Perpetual’s website at perpetual.com.au/about/corporate-governance Principal activities The principal activities of the consolidated entity during the financial year were portfolio management, financial planning, trustee, responsible entity and compliance services, executor services, accounting and tax services, investment administration and custody services. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report22 Review of operations A review of operations is included in the Operating and Financial Review section of the Annual Report. For the financial year to 30 June 2022, Perpetual reported a net profit after tax attributable to equity holders of Perpetual Limited of $101.2 million compared to the net profit after tax attributable to equity holders of Perpetual Limited for the financial year to 30 June 2021 of $72.9 million. For the financial year to 30 June 2022, Perpetual reported an underlying profit after tax (UPAT) attributable to equity holders of Perpetual Limited of $148.2 million compared to the UPAT attributable to equity holders of Perpetual Limited for the financial year ended 30 June 2021 of $122.8 million. UPAT attributable to equity holders of Perpetual Limited excludes certain items, that are either significant by virtue of their size and impact on net profit after tax attributable to equity holders of Perpetual Limited, or are determined by the Board and management to be outside normal operating activities. UPAT attributable to equity holders of Perpetual Limited is disclosed as it is useful for investors to gain a better understanding of Perpetual’s financial results from normal operating activities. The reconciliation of net profit after tax attributable to equity holders of Perpetual Limited to UPAT attributable to equity holders of Perpetual Limited for the financial year to 30 June 2022 is shown below. Net profit after tax attributable to equity holders of Perpetual Limited Significant items after tax Expense cloud computing costs 1 Transaction and integration costs 2 Non-cash amortisation of acquired intangible assets 3 Unrealised losses/(gains) on financial assets 4 Accrued incentive compensation liability 5 30 JUNE 2022 $M 30 JUNE 2021 $M 101.2 72.9 – 22.2 18.6 10.9 (4.7) 0.7 32.1 13.6 (6.8) 10.3 Underlying profit after tax attributable to equity holders of Perpetual Limited 148.2 122.8 1. Reflects a restatement of prior year comparatives for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) of the financial statements for further details. 2. Relates to costs associated with the acquisition/establishment of Trillium, Barrow Hanley and other entities. Costs include professional fees, administrative and general expenses and staff costs related to specific retention and performance grants. 3. Relates to amortisation expense on customer contracts and non-compete agreements acquired through business combinations. 4. Relates to unrealised mark to market gains and losses on EMCF, seed fund investments and financial assets held for regulatory purposes. 5. This liability reflects the value of employee owned units in Barrow Hanley. Directors’ Reportfor the year ended 30 June 2022Perpetual Annual Report 202223 UPAT attributable to equity holders of Perpetual Limited reflects an assessment of the result for the ongoing business of the consolidated entity as determined by the Board and management. UPAT has been calculated in accordance with ASIC’s Regulatory Guide 230 – Disclosing non-IFRS financial information. UPAT attributable to equity holders of Perpetual Limited has not been audited by our external auditors; however, the adjustments to net profit after tax attributable to equity holders of Perpetual Limited have been extracted from the books and records that have been audited. COVID-19 continues to have an impact on global economies and financial markets, resulting in significant economic uncertainty and market volatility. It has also led to material structural shifts in the behaviour of the economy and unprecedented actions by financial markets, governments and regulators. Financial markets are also dealing with the impact of Russia’s invasion of Ukraine and rising inflation and interest rates. The consolidated entity continues to monitor the impact of these factors on its operations, control environment and financial reporting. Consistent with the approach applied in the preparation of the half-year financial statements at 31 December 2021, management has evaluated whether there were any additional areas of significant judgement or estimation uncertainty, assessed the impact of market inputs and variables potentially impacted by prevailing conditions on the carrying values of its assets and liabilities, and considered the impact on the consolidated entity’s financial statement disclosures. As disclosed in the interim financial report, the consolidated entity’s revenues have a high degree of exposure to market volatility which has the potential to lead to a material financial impact. The US operations are similarly exposed to market movements due to the nature of the business. Whilst this has been factored into the preparation of the financial report, the accounting policies and methodologies have been applied on a consistent basis to the half-year financial report. The Directors and management continue to closely monitor developments with a focus on potential financial and operational impacts as developments arise. Dividends Dividends paid or provided by the Company to members since the end of the previous financial year were: Declared and paid during the financial year 2022 Final 2021 ordinary Interim 2022 ordinary Total Declared after the end of the financial year 2022 After balance date, the Directors declared the following dividend: Final 2022 ordinary Total CENTS PER SHARE TOTAL AMOUNT $M FRANKED 1/ UNFRANKED DATE OF PAYMENT 96 112 97 54.3 63.4 117.7 55.0 55.0 Franked 24 Sep 2021 Franked 01 Apr 2022 Franked 30 Sep 2022 1. All franked dividends declared or paid during the year were franked at a tax rate of 30% and paid out of retained earnings. The financial effect of dividends declared after year end are not reflected in the 30 June 2022 financial statements and will be recognised in subsequent financial reports. State of affairs There were no significant changes in the state of affairs of the consolidated entity during the financial period. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report24 Events subsequent to reporting date A final dividend of 97 cents per share fully franked was declared on 25 August 2022 and is to be paid on 30 September 2022. On 25 August, Perpetual announced that it is has entered into a binding Scheme Implementation Deed (‘SID’) with Pendal Group (‘Pendal’) (ASX:PDL) under which Perpetual will acquire 100% of shares in Pendal by way of a Scheme of Arrangement (‘the Acquisition’). The Scheme is subject to customary conditions and approvals including court, regulatory and Pendal shareholder approval as well as obtaining the appropriate number of Pendal client consents. Pendal’s Board of Directors has unanimously recommended that Pendal shareholders accept Perpetual’s offer, in the absence of any superior proposal and subject to independent expert’s opinion that the scheme is in the best interests of shareholders. The acquisition is currently expected to close by late calendar year 2022 or early calendar year 2023, subject to requisite shareholder and regulatory approvals. The acquisition will be effected via a share exchange with every 7.50 shares of Pendal common stock exchanged for one newly issued share in Perpetual and A$1.976 cash per Pendal share. Based on the last closing share price of Perpetual at 24 August 2022 of $30.30, the offer implies an acquisition price of $6.02 for each Pendal share. The cash component of the offer, totalling $757 million, will be funded via a new debt facility. The new facility will also re-finance the existing debt facility and includes undrawn headroom for liquidity management purposes. The new facility will consist of three core facilities, three acquisition facilities and a bridge loan facility. The core facilities will consist of: – a multi-currency redrawable loan facility with a maximum commitment of A$175 million or equivalent and a term of three years expiring in November 2025 (Facility Core 1); – a multi-currency term loan facility with a maximum commitment of USD128 million or equivalent and a term of four years expiring in November 2026 (Facility Core 2); and – a redrawable Letter of Credit facility with a maximum commitment of A$160 million and a term of three years expiring in November 2025 (Facility Core 3). The acquisition facilities will consist of: – a multi-currency redrawable loan facility with a maximum commitment of A$115 million and a term of three years expiring in November 2025 (Facility Acquisition 1); – a UK pound term loan facility with a maximum commitment of GBP115 million and a term of three years expiring in November 2025 (Facility Acquisition 2); and – a multi-currency term loan facility with a maximum commitment of USD45 million and a term of four years expiring in November 2026 (Facility Acquisition 3). The bridge loan facility will have a maximum commitment of A$400 million and a term of two years expiring in November 2024 (Bridge Facility). Interest expense on the new facilities other than Facility Core 3 will be based on the relevant floating rate benchmark plus a margin. Interest expense on Facility Core 3 is at a flat rate. As previously indicated, Perpetual will not be raising equity to fund any portion of the cash consideration. Other than the matters noted above, the Directors are not aware of any other event or circumstance since the end of the financial year not otherwise dealt with in this report that has affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years. Directors’ Reportfor the year ended 30 June 2022Perpetual Annual Report 202225 Likely developments Information about the business strategies and prospects for future financial years of the consolidated entity are included in the Operating and Financial Review. With the exception of the previous disclosure regarding the acquisition, further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity because the information is commercially sensitive. Environmental regulation The consolidated entity acts as trustee or custodian for a number of property trusts which have significant developments throughout Australia. These fiduciary operations are subject to environmental regulations under both Commonwealth and State legislation in relation to property developments. Approvals for commercial property developments are required by State planning authorities and environmental protection agencies. The licence requirements relate to air, noise, water and waste disposal. The responsible entity or manager of each of these property trusts is responsible for compliance and reporting under the government legislation. The consolidated entity is not aware of any material non-compliance in relation to these licence requirements during the financial year. The consolidated entity has determined that it is not required to register to report under the National Greenhouse and Energy Reporting Act 2007, which is Commonwealth environmental legislation that imposes reporting obligations on entities that reach reporting thresholds during the financial year. Indemnification of Directors and officers The Company and its controlled entities indemnify the current Directors and officers of the companies against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors of the consolidated entity, except where the liabilities arise out of conduct involving a lack of good faith. The Company and its controlled entities will meet the full amount of any such liabilities, including costs and expenses. The auditor of the Company is in no way indemnified out of the assets of the Company. Insurance In accordance with the provisions of the Corporations Act 2001, the Company has a Directors and officers’ liability policy which covers all Directors and officers of the consolidated entity. The terms of the policy specifically prohibit disclosure of details of the amount of the insurance cover and the premium paid. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report26 Directors’ interests in registered schemes As at the date of this report, directors had the following relevant interests in registered schemes made available by the Company or a related body corporate of the Company. NAME REGISTERED SCHEME Tony D’Aloisio Perpetual Credit Income Trust Perpetual Pure Microcap Fund Class A Perpetual Wholesale Industrial Share Fund Perpetual Share Plus Long Short Fund Perpetual Wholesale Global Share Fund Ian Hammond Perpetual Wholesale Geared Australian Fund Perpetual Wholesale Industrial Share Fund Eley Griffiths Group Small Companies Fund Nancy Fox Perpetual Credit Income Trust Perpetual Wholesale Ethical SRI Fund Perpetual Global Innovation Share Fund Class A Perpetual Ethical SRI Credit Fund Trillium Global Sustainable Opportunity Fund Implemented Real Estate Portfolio Craig Ueland Perpetual Pure Credit Alpha Fund Class W Perpetual Global Innovation Share Fund Class A Perpetual Pure Equity Alpha Fund Rob Adams Perpetual Industrial Share Fund Perpetual Australian Share Fund Perpetual Wholesale Diversified Income Fund Perpetual Wholesale Plus Global Share Fund RELEVANT INTEREST (UNITS) 227,000 65,608 149,490 71,721 77,156 133,660 252,942 152,591 10,935 42,429 93,337 28,206 29,847 23,012 23,670 4,062,542 460,803 47,743 6,296 154,919 149,981 Chief Executive Officer and Managing Director’s and Chief Financial Officer’s declaration The CEO and Managing Director, and the CFO declared in writing to the Board, in accordance with section 295A of the Corporations Act 2001, that the financial records of the Company for the financial year have been properly maintained, and that the Company’s financial report for the year ended 30 June 2022 complies with accounting standards and presents a true and fair view of the Company’s financial condition and operational results. This statement is required annually. Directors’ Reportfor the year ended 30 June 2022Perpetual Annual Report 2022Remuneration Report 27 Dear Shareholder, On behalf of your Board, as always it gives me great pleasure to present our Remuneration Report for the financial year ended 30 June 2022 (FY22). Perpetual’s purpose is ‘enduring prosperity’. In our view, this is best achieved by having highly engaged people creating superior client outcomes, which in turn delivers underlying earnings growth for shareholders. Our Remuneration Report provides our shareholders and other stakeholders with a thorough and transparent explanation of how remuneration outcomes for our Key Management Personnel (KMP) align with our recent performance, long-term objectives, and reflect the current economic and labour market context. Perpetual’s performance in FY22 Perpetual delivered strong financial performance in FY22. Underlying profit after tax (UPAT) was $148.2m, exceeding prior year by 21% and the Board-approved business plan by 3%. Underlying earnings per share (EPS) of $2.58 represented growth of +18% on prior year. Perpetual demonstrated growth in UPBT across all four divisions in FY22, reflecting the strength of our diversified business model. Importantly, Perpetual’s recent acquisitions translated into shareholder value in FY22. Barrow Hanley exceeded the stated target of 20% underlying EPS accretion in the first full year following acquisition, Trillium Asset Management delivered over A$639m of positive net inflows and the acquisitions of Jacaranda Financial Planning and Laminar Capital, which each completed early in the financial year, are performing ahead of expectations for key growth and financial metrics. Perpetual takes a long-term view of performance, with the delivery of multi-year strategic priorities of particular importance. Successful delivery of the strategy is assessed by clear annual client, people, growth and financial measures which are aligned to long-term strategic objectives, thereby balancing short-term outcomes with the necessary investments for long-term sustainable growth. Perpetual’s financial results were delivered while continuing to invest in future growth and value-generating initiatives for our core businesses. Perpetual established the first of a suite of Collateralised Loan Obligation (CLO) funds, launched a suite of US Mutual Funds, listed a suite of active ASX ETFs for our Australian and global investment teams and increased our investment in technology relative to FY21. In FY22 our Australian Equities and Barrow Hanley investment teams delivered strong investment performance relative to agreed benchmarks. More broadly, Perpetual’s Group Net Promoter Score (NPS) outcome of +49 was improved on the prior year outcome of +44 and exceeded Perpetual’s goal of maintaining NPS above +40. FY22 variable remuneration outcomes Perpetual continues to use a balanced scorecard that considers short, medium and long-term strategic priorities. Perpetual’s group scorecard remains weighted 60% to financial performance measures and 40% to other strategically important non-financial measures that the Board considers to be key lead indicators of future business value creation. The People and Remuneration Committee (PARC) and the Board spend considerable time each year evaluating the contribution and performance of the CEO and other Executive KMP. In arriving at the proposed Variable Incentive outcomes for Executive KMP, the Board weighed up strong financial performance despite continued pressure on net flows in our asset management businesses, continued delivery on client outcomes, successful implementation of strategy and shareholder alignment and returns. The Board has determined to award the CEO a Variable Incentive award of 106% of target, or 61% of maximum opportunity, with individual outcomes for other Executive KMP averaging 103% of target, or 59% of maximum opportunity. The aggregate Variable Incentive outcomes approved for the CEO and other Executive KMP align to the bonus funding levels approved more broadly across Perpetual. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report28 External market conditions FY22 presented dynamic market conditions globally. The COVID-19 pandemic continued to be a driver of volatility in several markets in which Perpetual operates. As we emerged from the pandemic, it became evident that the market for key talent was increasingly competitive. For Perpetual, this resulted in a return to pre-COVID employee turnover rates, challenges in filling some open vacancies and increasing pressure on wages across many parts of the organisation. Perpetual is not alone in facing these market challenges, and in early FY22 we made a number of proactive changes to benefits, leave entitlements and other flexibility initiatives to further enhance the overall employee experience. Despite this investment, Perpetual has remained disciplined in its approach to cost control, with expense growth remaining within guidance. As foreshadowed in the FY21 Remuneration Report, changes to fixed remuneration and Variable Incentive targets were made for the Executive KMP as part of the July 2021 remuneration review. The aggregate impact of these fixed remuneration adjustments was a 3.2% increase to fixed pay for the Executive team during FY22 (see Section 1.1 for further information). Looking forward to FY23 Perpetual’s long-term success depends on its ability to attract, motivate and retain talented people. The competition for top talent is intensifying both in Australia and overseas. With this in mind, and in recognition that Perpetual is increasingly competing for talent globally, the Board reviewed compensation for Executive KMP and considered whether the current long-term incentive (LTI) plan should be enhanced. A number of resulting changes will take effect for the performance period commencing FY23, as summarised below: – Aggregate fixed pay increases of 5.3% have been agreed and will take effect from 1 September 2022, (with no change being made to the CEO’s fixed pay). More substantial changes have been made to Variable Incentive targets for some Executive KMP (including the CEO) with effect from 1 July 2022. – Perpetual will decouple the Hurdled Equity component from the combined Variable Incentive with effect from 1 July 2022. The Hurdled Equity component of the Variable Incentive structure will remain subject to the existing long-term absolute TSR performance hurdle and performance range of 7–10% CAGR, however awards will no longer be subject to the group scorecard assessment prior to allocation. The Cash and Unhurdled Equity components of the Variable Incentive will remain unchanged and be subject to the group scorecard assessment. Each Executive KMP will continue to have a target Hurdled Equity amount that will form the starting basis for the Board’s determination of each year’s allocation. While the Board will retain discretion to adjust individual Executive KMP Hurdled Equity allocations higher or lower each year, it is expected that this change will result in more consistent Hurdled Equity allocations being made to Executive KMP across business cycles – similar to a traditional LTI. Executive KMP Growth Long-term Incentive – Perpetual has made a number of strategic acquisitions and investments over the past two years and the next three to five years will be a critical period for Perpetual to realise the scale and benefit of these investments and deliver improved returns for shareholders. In order to support successful integration and implementation across a number of key deliverables, in September 2022, the Company will grant a growth-orientated long-term incentive to Executive KMP. This grant will be subject to meeting a stretch compound annual growth (CAGR) absolute TSR hurdle, with awards that will vest over a period of three to five years, with any vested shares held under restriction for a full five-year period. See Section 7.6 for further information. Conclusion On behalf of the Board, I would like to thank shareholders and other stakeholders for your valuable feedback and ongoing dialogue on our remuneration approach. We are confident that we have balanced shareholder interests whilst also ensuring that our team is appropriately remunerated such that your company has the best possible opportunity to deliver on our strategic goals. Yours sincerely, Nancy Fox Chairman, People and Remuneration Committee Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202229 29 31 32 36 38 41 45 54 62 65 Contents 1. Key Management Personnel 2. Governance 3. Our people 4. Our remuneration philosophy and structure 5. Managing risk within Perpetual 6. Aligning Perpetual Group performance and reward 7. Variable reward 8. Data disclosures – Executive KMP 9. Non-executive Director remuneration 10. Key terms 1. Key Management Personnel NAME POSITION TERM AS KMP IN FY22 Executive KMP CEO and Managing Director Rob Adams Chief Executive Officer and Managing Director Full year Group Executives Amanda Gazal Chief Operating Officer Full year Amanda Gillespie Group Executive, Perpetual Asset Management Aust. Full year Chris Green David Lane Chief Financial Officer Group Executive, Perpetual Asset Management Int. Richard McCarthy Group Executive, Perpetual Corporate Trust Sam Mosse Mark Smith Chief Risk Officer Group Executive, Perpetual Private Non-executive KMP Non-executive Directors Tony D'Aloisio Chairman Mona Aboelnaga Kanaan Independent Director Gregory Cooper Nancy Fox Ian Hammond Independent Director Independent Director Independent Director Fiona Trafford-Walker Independent Director Craig Ueland Independent Director Full year Full year Full year Full year Full year Full year Full year Full year Full year Full year Full year Full year Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report30 1.1 Summary of key outcomes for Executive KMP Executive KMP remuneration changes during FY22 Section 8 of this report provides further information on individual Executive KMP remuneration levels. As foreshadowed in the FY21 Remuneration Report, changes to fixed remuneration and Variable Incentive Targets were made as part of the July 2021 remuneration review. All increases were determined in consideration of relevant market data and trends, as well as to reflect continued development in role and the increasing complexity and breadth of managing a global business. The aggregate impact of the fixed pay adjustments was a 3.2% increase to the aggregate fixed pay of Executive KMP during FY22. The CEO did not receive a fixed pay change in FY22. Variable Incentive awards FY22 Section 7 of the Remuneration Report summarises business performance and associated Executive KMP Variable Incentive outcomes, which averaged 103% of target (59% of maximum target) for Executive KMP (excl. CEO) and 106% of target (61% of max) for the CEO in FY22. Arrangements for Executive KMP who joined or ceased in FY22 No Executive KMP joined or ceased during FY22. Remuneration changes for FY23 Following a detailed review of KMP remuneration in FY22, several changes to fixed remuneration levels and target Variable Incentive opportunity levels have been agreed for FY23. The Board is attuned to the current competitive landscape and believe the agreed arrangements for FY23 position the Group to maintain a stable and motivated Executive team, with particular focus on incentivising our KMP to continue to deliver on our agreed longer term strategic priorities. Executive KMP target packages for FY23 – Aggregate fixed pay increases of 5.3% have been agreed and will take effect from 1 September 2022. The CEO’s fixed remuneration will not change for FY23 and has not been adjusted since his appointment to the role in September 2018. – More substantial changes to Variable Incentive targets for some Executive KMP (including the CEO) have also been agreed with effect from 1 July 2022. The Board believes that increasing the CEO’s target Variable Incentive (from 186% to 219% of fixed pay in total) instead of fixed remuneration increases supports our pay-for-performance philosophy, while ensuring market competitiveness against comparable roles in the diversified financial services industry is maintained. Executive KMP Variable Incentive structure – For FY22 Perpetual operated a combined Variable Incentive structure for Executive KMP, which consists of a Cash, Unhurdled Equity and Hurdled Equity component (see Section 4 for more detail). Under the combined Variable Incentive, each component of the Variable Incentive structure is subject to a group scorecard assessment at the conclusion of the performance year, which determines the size of the allocation for each Executive KMP member. – For FY23 (effective for the performance period commencing 1 July 2022), the Hurdled Equity component of the Variable Incentive structure will remain subject to the existing long-term absolute TSR performance hurdle and performance range of 7–10% CAGR, however awards will no longer be subject to the group scorecard assessment prior to allocation. Each Executive KMP will continue to have a target Hurdled Equity amount that will form the starting basis for the Board’s determination of each year’s allocation. While the Board will retain discretion to adjust individual Executive KMP allocations higher or lower each year, it is expected that this change will result in more consistent allocations being made to Executive KMP across business cycles. Further detail on this change will be provided in the FY23 Remuneration Report. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202231 Executive KMP Growth Incentive Perpetual has made a number of strategic acquisitions and investments over the past two years and the next three to five years will be a critical period for Perpetual to realise the scale and benefit of these investments and deliver improved returns for shareholders. In recognition of this critical period, during FY22 the Board reviewed whether the current long-term incentive compensation program in place for Executive KMP should be modified or enhanced. Effective September 2022, the Company will grant a new growth orientated long-term incentive to Executive KMP (Growth LTI). – The Growth Incentive aims to further align Executive KMP with the Perpetual shareholder experience through incentivising the delivery of sustained shareholder value from recent strategic investments. Importantly, these awards will only deliver value when absolute TSR exceeds the existing 7–10% per annum vesting range in the KMP Hurdled Variable Incentive Awards. The Board believes this represents a significant degree of stretch performance when compared to the TSR achieved by the Company in recent years, which will require ongoing significant expansion in underlying EPS. – The vesting hurdle for these awards will be CAGR absolute TSR of at least 10% (0% vesting) to 15% (100% vesting). Subject to meeting this hurdle, vesting will occur equally after three, four and five years, with any vested equity restricted until year five. – The proposed Growth LTI award for the CEO, which will be subject to shareholder approval at the forthcoming AGM, is an award of Hurdled Performance Rights with a fair value 1 of $1.4 million, and for other Executive KMP, aggregate awards with a fair value totalling $4.3 million. Further details of these awards, including individual allocations and associated hurdles and conditions, are provided in Section 7.6. 1.2 Non-executive Director (NED) fees NED Fees were changed for FY22 in accordance with advice provided in the 2021 Remuneration Report. No adjustments to Non-executive Director fees are currently being considered for FY23. Further detail is available in Section 9. Total remuneration available to Non-executive Directors of $2.25 million (the NED Fee Cap) was approved by shareholders at the 2006 Annual General Meeting and has remained unchanged since this date. While total fees paid to NEDs in FY22 of $1,724,665 remain comfortably below the NED Fee Cap, the Board will seek shareholder approval at the FY22 Annual General Meeting to increase the NED Fee Cap to $3.5 million. This resolution aims to provide flexibility for the Board to consider any additional appointments or changes to Board composition as needed to allow for the continued execution of Perpetual’s global strategy. Details of this resolution will be made available in the Company’s Notice of Meeting for the forthcoming AGM in October 2022, with full details to be provided in the FY23 Remuneration Report. 2. Governance 2.1 The People and Remuneration Committee The People and Remuneration Committee (PARC) is a committee of the Board and is comprised of independent Non-executive Directors. Operating under delegated authority from the Board, the PARC evaluates and monitors people and remuneration practices to ensure that the performance of Perpetual is optimised with an appropriate level of governance while balancing the interests of shareholders, clients and employees. The PARC’s terms of reference are available on our website 2. The terms of reference are intentionally broad, encompassing remuneration as well as the key elements of Perpetual’s people and culture strategy. This enables the PARC to focus on ensuring high-quality talent management, succession planning and leadership development at all levels of Perpetual. The PARC met seven times during the year, with attendance details set out on page 21 of this Annual Report. A standing invitation exists to all Directors to attend PARC meetings. At the PARC’s invitation, the CEO and the Executive General Manager People and Culture attended meetings, except where matters associated with their own performance evaluation, development or remuneration were considered. The PARC considers advice and views from those invited to attend meetings and draws on services from a range of external sources, including remuneration advisers where considered appropriate. 1. Fair value calculations will be performed at the grant date of 1 September, meaning the exact Face Value of each award is yet to be confirmed. The estimated Face Value of the award for the CEO (R Adams) is approximately $4.6m, the estimated Face Value of the award for C Green is approximately $2.3m, and the estimated Face Value for each remaining KMP is approximately $1.95m. 2. perpetual.com.au/~/media/perpetual/pdf/shareholders/role-of-the-board/people_and_remuneration_committee_terms_of_reference_document.ashx. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report32 2.2 Use of external advisers During the year, Aon and Ernst & Young assisted the PARC with providing information on the remuneration competitiveness of the CEO and Executive KMP, which included analysis of the structure of the Executive KMP Variable Incentive Plan. The information provided did not include any specific recommendations in relation to the remuneration or fees paid to KMP. 3. Our people Our people strategy, a key enabler of our business strategy, is focused on attracting and retaining the best talent. The goal of our people strategy is to enable business growth by building the capabilities we need for the future and creating an environment in which our people can thrive. During FY22, bringing to life our Perpetual people promise, Perpetual introduced a number of market-leading benefits that focused on the wellbeing of our people (noting that benefit offerings differ by employee location). This included: – an additional two weeks of wellbeing and community leave per year (on top of existing four weeks annual leave) – 20 weeks of paid parental leave for either caregiver – an annual financial wellbeing allowance – free employee access to LinkedIn Learning – a truly hybrid flexible working model that empowers our people to work where we work best – a refreshed employee financial advice offering for our people; and – a new framework to support global mobility assignments. Our people promise 6 Grow your career 5 Make a difference 1 Join a trusted brand with respected expertise Our purpose To create enduring prosperity 4 Experience a collegial and inclusive culture 1. Join a trusted brand with respected expertise – Iconic and respected 135+ year-old brand with a proven track record – Consistent fund management performance and expertise 4. Experience a collegial and inclusive culture – Collaborative teams – Leaders who encourage innovation, learning and empowerment – Four generations of clients – Authentically inclusive – Opportunity to learn from the best 2 2. Thrive at work and home Thrive at work and home 3 Be part of a growing global team – We invest in the wellbeing of our people so that they can be their best selves at work and at home – Wellbeing programs and initiatives that enhance physical, mental, social and ﬁnancial wellbeing – Programs that support our people through different age and life stages – Market leading parental leave scheme and support for carers 3. Be part of a growing global team – A growing global brand and team – ofﬁces in Australia, Asia, UK, Europe and USA – Access to global career pathways and mobility opportunities – Learn from experts in our global markets environment – not just lip service – Diversity and inclusion is highly valued and there are numerous employee-led D&I networks – Strong commitment to ﬂexibility and hybrid working 5. Make a difference – Giving back is part of our Perpetual DNA. As Australia’s largest philanthropy business, we have a strong commitment to supporting the communities within which we live and work – Strong and longstanding community partnerships and commitment to sustainability – Partner with clients as a trusted adviser and make a difference to their lives – Contribute openly and have a voice at the table – Broad, varied and meaningful roles – Contribute to the Perpetual purpose of enduring prosperity 6. Grow your career – Be challenged and supported to grow – Strong self-led learning culture – Leadership development, mentoring programs and secondment opportunities to support our people to grow Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202233 3.1 Refreshing our behaviours for growth To position Perpetual for further growth and to promote a more innovative and adaptable culture for our business, Perpetual’s enterprise behaviours were refreshed in FY22. These behaviours bring to life Perpetual’s purpose, vision and values and provide the behavioural expectations for how our people interact with their colleagues, clients and the community. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report34 3.2 Diversity and Inclusion At Perpetual, we’re committed to building diverse and inclusive teams to support our high-performance culture. We believe that an inclusive culture will enable growth and will deliver better outcomes for our people, clients and shareholders. The Perpetual Board is responsible for the endorsement of Perpetual’s Diversity and Inclusion (D&I) strategy and Policy, and the PARC has oversight and ongoing responsibility of implementation. Our D&I strategy has been developed by our dedicated Diversity and Inclusion Council. Focus in FY22 has been on progressing the strategy which is supported by a comprehensive roadmap that aims to embed D&I in Perpetual’s DNA. The roadmap prioritises key initiatives across our seven employee-led working groups that focus on a range of diverse areas of identity – gender equality, cultural diversity, age and life stages, LGBTQ+, disability, parents and carers and cognitive diversity. Key diversity and inclusion achievements in FY22 are outlined below. – New Parental Leave Benefit launched on 1 July 2022 – Paid leave allowance increased to 20 weeks and primary and secondary carer distinctions Launched a Market-leading Parental Leave Benefit removed (gender neutral) – Enhanced flexibility of the policy – New paid leave allowances for fertility treatments (5 days), pre-adoption leave (2 days) and grandparent’s leave (1 day) – Perpetual Pride Network formed – 20+ active members – Membership with Out Leadership formally commenced, announced to Perpetual global staff Established the Perpetual Pride Network during Pride Month – Developed LGBTQ+ strategy and action plan – Pride Network are engaged and have commenced delivery of LGBTQ+ action plan – Perpetual participation in three events with Future IM/Pact Growing our Female Talent Pipeline – Pilot partnership with F3 (Future Females in Finance) completed and three high-performing participants offered Perpetual mentoring opportunity – Four candidates from Future IM/Pact and F3 program referred to Perpetual’s graduate program and will be shortlisted – New partnership with Uni 2 Beyond, offering two internships to individuals with an intellectual disability New Partnership with Uni 2 Beyond – Individuals were placed in PCT and PCS for 9 weeks – Interns were also given the opportunity to meet Rob Adams – Extremely positive feedback from the interns’ managers and the interns Recognised as WGEA Employer of Choice for the 5th Consecutive Year – Recognised as an Employer of Choice for Gender Equality for the fifth consecutive year – Each submission requires organisations to demonstrate a higher standard of achievement and progress towards gender equality outcomes – In addition, Perpetual achieved compliance in the 2021-22 WGEA Compliance Report submission – Perpetual upgraded its membership with Jawun to the ‘Transform Partnership’ tier New Tier of Membership with Jawun – The Transform Partnership means that in 2022 we will have 6 employee secondments, 4 Executive Visits, and 2 female Senior Leaders participate in the ‘Stories of Female Leadership’ convention. – Celebrated nine years of partnership between Perpetual and Jawun with LinkedIn post and panel event hosted in July 2022 as part of NAIDOC week. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202235 A key focus of our D&I Strategy is building global awareness. Initial steps have been taken to broaden focus beyond our domestic Australian business, notably through Perpetual’s partnership with Out Leadership, whose events, development opportunities and educational resources provide a global offering. FY22 FY23 Domestic approach to D&I 2022 Enhanced Parental Leave Benefit implementation plan (Phase 1: Australia) Grow D&I Partnerships: F3 (Gender Equality), Uni 2 Beyond (Disability) Program Management of existing D+I partnerships and programs – Jawun (Cultural Diversity), Future IM/Pact (Gender Equality), Parents At Work (Parents + Carers) Pilot Early Career Female Mentoring Program (Gender Equality) D+I reporting – enhancements and operating rhythm – Inclusive Leadership Program – PAC policy review project with the lens of various D+I pillars – Analysis and development of life stage personas to inform D+I Strategy – Understanding reasonable adjustment considerations for Disability strategy – Exploring job share opportunities at senior levels – Future IM/Pact program for 2023 early career female talent – Commence WGEA Employer of Choice plan for 2023 application Global approach to D&I Barrow Hanley Analyst Program – Parental Leave Benefit Phase 2: New Partnership with Out Leadership & establishment of global Pride Network global harmonisation – Global inclusion within our Pride Network Continued focus on Women in Leadership – Expanded global representation and Asset Mgmt. (AU and Global) on Diversity Council Trillium Active Bystander training and inclusive workplace discussions – Develop cultural diversity profile and metrics The Perpetual Executive Committee, the PARC and the Perpetual Board regularly review the progress of the D&I strategy, as well as key diversity metrics for the organisation and at the business unit level. These include: – gender equality metrics (such as women in senior leadership, women in key business line roles, gender representation in talent and development programs, mobility and turnover); – flexibility utilisation; – gender pay gap analysis; and – key employee demographics such as cultural and religious diversity, sexual orientation and disability. A key component of Perpetual’s gender equality strategy is to reduce our organisation-wide gender pay gap (GPG), and maintain gender pay equity on a ‘like for like’ role basis. The organisation-wide GPG refers to the difference between women’s and men’s average weekly full-time earnings. The two key levers for decreasing our GPG are (i) increasing the percentage of women in senior leadership roles; and (ii) increasing the percentage of women in asset management and key business-line roles. Perpetual has committed to achieving a 40% ‘women in senior leadership’ target and a 25% ‘women in asset management’ target by the end of 2024. Each of these targets is supported by a robust action plan. In addition, Perpetual has committed to a GPG reduction target of 10% by 2024. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report36 4. Our remuneration philosophy and structure Perpetual’s remuneration philosophy is designed to enable the achievement of our business strategy, ensure that remuneration outcomes are aligned with our shareholder, client and community best interests and are market competitive. To that end, we have created a set of guiding principles that direct our remuneration approach. 4.1 Remuneration principles Our remuneration policy is designed around six guiding principles, which aim to: 1. attract, motivate and retain the desired talent within Perpetual 2. balance value creation for shareholders, clients and employees 3. facilitate the accumulation of equity or investments in product to drive an ownership mentality and long-term alignment of interests 4. embed and encourage sound risk management, behaviours and conduct 5. be simple, transparent, equitable and easily understood and administered; and 6. be supported by a governance framework that avoids conflicts of interest and ensures proper controls are in place. 4.2 Remuneration policy and practice CEO and other Executive KMP remuneration Perpetual has implemented a transparent remuneration model that is aligned to our business strategy and supports the attraction and retention of talent. The core elements of our Executive KMP remuneration framework in FY22 1 are unchanged from FY21 and include both fixed and variable incentives as follows 2. Fixed Fixed remuneration Cash Variable Incentive (if payable) Unhurdled Equity Hurdled Equity Set in consideration of the total target remuneration package and the desired remuneration mix for the role, taking into account the remuneration of market peers, internal relativities and the skill and expertise brought to the role. Calculated on a “total cost to company” basis, consisting of cash salary, pension, and in Australia, packaged employee benefits and associated fringe benefits tax (FBT). Each participant has a Variable Incentive target, expressed as a defined $ target amount. Annual Variable Incentive outcomes are linked to performance against key business metrics directly linked to our strategy. The Variable Incentive is awarded as a mix of cash and equity. Equity must be retained for at least four years. The Unhurdled Equity component is awarded as Share Rights, which vest after two years into Restricted Shares for a further two years. The Hurdled Equity component is awarded in the form of Performance Rights (subject to performance hurdles of absolute total shareholder return) which vests equally over three and four years (with any vested equity tested after three years restricted for a further year). The emphasis on equity ensures that Variable Incentive outcomes are linked to shareholder experience through reinforcing long-term ownership of Perpetual shares. Paid as cash Awarded as equity 1. Changes foreshadowed to CEO and Executive Remuneration in the Chairman’s letter and Section 1 above for FY23 are not described in this section. 2. Any other contracts are at arm’s length in the normal course of business and on normal commercial terms consistent with other employees and clients. Those transactions may involve investments in Perpetual managed funds and financial advice by Perpetual Private. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202237 Asset manager remuneration Perpetual seeks to align asset manager remuneration with longer-term value creation for our clients, which in turn is expected to benefit shareholder outcomes. Asset manager remuneration is aligned to Perpetual’s performance-based remuneration philosophy and principles. The remuneration arrangements for asset managers are typically structured to recognise and reward strong investment outcomes to our clients and also align to the growth in revenue or manageable profit of the strategies they support. – Asset management staff within Trillium, including its UK-based ESG Global Equities team, and Barrow Hanley receive performance-based variable remuneration linked to overall business earnings and individual performance. Trillium operates a bonus plan that is determined with reference to the financial performance of the business, with adjustments also made for investment performance, growth goals and other strategic focus areas (which includes risk overlays). Further, to align the interests of key staff with investors, senior Trillium staff are eligible to receive deferred variable incentives as units in Trillium funds that they manage or as Perpetual shares. – Barrow Hanley operates a bonus plan which is funded primarily via reference to the pre-bonus manageable profit of the boutique. Most investment employees participate in the bonus plan, whereby a set percentage of payments are made in cash and the remaining portion is distributed as unit interests in Barrow Hanley 1. – PAMA asset managers typically have a portion of their variable remuneration quantitatively determined by performance against investment targets, which is generally assessed over one, two and three years. Portfolio managers managing mature funds and those who are growing businesses may have a portion of their remuneration aligned to other business measures. For example, Perpetual’s Australian Equities portfolio managers have their long-term incentives determined through a revenue share that provides a team-based goal and focus. – Generally, all asset managers have a portion of their variable remuneration awarded as either deferred short-term incentives (STI) or long-term incentives (LTI) each year. – This cycle of rolling awards ensures retention arrangements are in place and avoids cliff vesting events. For most asset managers, deferred incentives can be invested into either Company equity or units in funds that they are responsible for, further aligning asset managers to client outcomes and shareholder interests. General employee remuneration Employees receive salary, a competitive retirement and benefit offering and are commonly eligible to receive an STI or bonus. Performance against the group balanced scorecard and other factors determines the size of the bonus pool for the financial year. Relative divisional performance against a range of inputs then determines the distribution of the bonus pool to each division. An individual’s performance rating is determined based on performance against objectives agreed at the commencement of the performance year. An individual’s bonus outcome is generally based on this performance rating, which is reflective of performance against targets in an individual scorecard, delivery of goals against Perpetual’s behavioural framework and an employee’s approach to the management of risk. Some senior employees are also eligible to participate in a long-term incentive plan. All other Australian-based employees are eligible to participate in the One Perpetual Share Plan whereby eligible employees can be awarded annual grants of up to $1,000 of Perpetual shares subject to Perpetual meeting our Group profit target. This scheme is limited to Australian-based staff due to the legal and tax environments in other geographies. In addition, Perpetual offers a comprehensive range of employee benefits across wealth, health and lifestyle categories in the geographies where staff are employed. 1. Although Barrow Harrow staff are issued with unit interests each year in the normal course of business, this may not occur every year if previous year allocations have been significant. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report38 5. Managing risk within Perpetual Risk management continues to be a fundamental focus within our business, with the Perpetual Board having the responsibility and commitment to ensure that Perpetual has a sound risk management framework in place. Perpetual’s Risk Group is a centralised corporate function, managed by the Chief Risk Officer, who reports directly to the CEO. The Risk Group has developed risk measurement systems and practices that are utilised when determining ‘at risk’ remuneration. To this effect, risk management is a key performance metric at a Group, divisional and individual level. Risk and behavioural performance The Board, the PARC and people leaders have a range of mechanisms available to adjust remuneration and incentive outcomes to reflect behavioural, risk or compliance outcomes (both strong and weak) at a Group, divisional and individual level. The table below summarises the range of mechanisms available and their intended operation. MECHANISM DESCRIPTION/INTENTION OF THE MECHANISM Risk dashboards (apply at a Group or divisional level) Incentive funding can be adjusted (upwards or downwards) following a combined Audit, Risk and Compliance Committee (ARCC) and PARC review of Group and divisional risk ‘dashboards’, which are produced by the Risk and Internal Audit functions throughout the year as well as leading into financial year-end. Behavioural ratings – Perpetual Behaviours and Risk Ratings Behavioural and risk assessments are collected for most employees at Perpetual – noting that recently acquired businesses often operate their own risk and behavioural frameworks. The behavioural and risk components of the scorecard effectively moderate employee performance outcomes. Behavioural ratings are provided across a four-point scale and can result in either upward or downward adjustments to performance ratings and reward outcomes. Additionally, a discrete risk assessment is undertaken for most employees using a consistent framework covering a range of risk measures and expectations across various seniority levels of the organisation. Malus provisions or international equivalents (apply to all deferred STI and long-term incentive plans) These allow for the Board to adjust or lapse any unvested incentive awards where, in the opinion of the Board, the participant has acted fraudulently and/or dishonestly, has breached his or her obligations to the Group, where outcomes have been misstated, or where the Board determines at its sole discretion that outcomes are inappropriate. Clawback provisions or international equivalents (apply to all deferred STI and long-term incentive plans) Board discretion (all incentive plans) These allow for the Board to reclaim (or ‘claw back’) vested incentives where, in the opinion of the Board, vesting occurred as a result of fraud, dishonesty, a breach of obligations or where outcomes have been misstated. This applies to both current and former employees. Overriding the above mechanisms, the Board, and in some instances management, has discretion to adjust proposed incentive or vesting outcomes, subject to the applicable rules governing each incentive plan. The discretion to vary incentive outcomes from the agreed formulas range from absolute unfettered discretions to more limited discretions which may only be applied in specific circumstances. In addition to the above mechanisms, Perpetual: – performs detailed scenario testing on potential outcomes under any new or changed incentive plans – reviews the alignment between proposed remuneration outcomes and performance achievement for incentive plans on an annual basis; and – delivers a significant portion of variable remuneration as deferred incentives (for more senior employees) in equity or investments in products to align remuneration outcomes with longer term shareholder and client value. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202239 Link between risk and reward An employee’s approach to managing risk is a key factor when considering his or her yearly performance. Risk management performance measures are overlaid in employee scorecards as per the graphic below. These measures are considered when assessing overall performance and incentive payments. TO BE ELIGIBLE FOR A VARIABLE INCENTIVE, ALL EMPLOYEES MUST MEET MINIMUM RISK CRITERIA Embeds appropriate risk behaviours in all endeavours and effectively balances risk with opportunity Applies the Risk Appetite Statement in decision making processes Escalate issues to Risk within five days Completes compliance tasks on time and accurately (training and management of obligations) FY22 risk performance FY22 full year risk performance results demonstrate continued focus on risk across the Group and are considered positive given the extent of organisational change that has continued over the last 12 months, which has included: – the integration of onshore acquisitions (Laminar Capital and Jacaranda Financial Planning); – ongoing transition and expansion of offshore businesses; – the residual impacts of COVID-19; and – management of major project activity throughout the business. Notwithstanding this, there are some isolated metrics across the divisions where improvements are required. Resourcing constraints have remained elevated during the period which have impacted some metrics, arising from the evolving post COVID-19 working environment and supporting the numerous strategic initiatives/projects across the Group, accompanied by an increasing complexity of the business through the onshore acquisitions and an increasing global presence. This continues to be closely monitored by Executive KMP. On balance given the above, and the environment in which we have operated in the past 12 months, no risk adjustments to bonus funding levels were recommended at the Group or divisional level. In addition, no adjustments were made to individual Executive KMP Variable Incentive outcomes for FY22 based on risk performance. Further information on the Board’s review of prior year vesting is available in Section 7.7. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report40 Minimum shareholding guideline A minimum shareholding guideline applies to Executive KMP. The purpose of this guideline is to strengthen the alignment between Executive KMP and shareholders’ interests related to the long-term performance of Perpetual. Under this guideline, Executive KMP are expected to establish and hold a minimum shareholding to the value of: – CEO: 1.5 times fixed remuneration – Other Executive KMP: 0.5 times fixed remuneration The value of each vested Restricted Share still held under restriction for the Executive KMP is treated as being equal to 50% of actual value, as this approximates the value of the share in the hands of the Executive after allowing for tax. Unvested shares or rights do not count towards the target holding. A five-year transition period from the date of appointment to an Executive KMP role gives Executive KMP reasonable time to meet their shareholding guideline. Where the guideline is not met after the required time period, the CEO and other Executive KMP may be restricted from trading vested shares. As at 30 June 2022, progress towards the minimum shareholding target for each Executive KMP was as follows. Minimum shareholding guidelines VALUE OF ELIGIBLE SHAREHOLDINGS AS AT 30 JUNE 2022 1 $ VALUE OF MINIMUM SHAREHOLDING GUIDELINE $ TARGET DATE TO MEET MINIMUM SHAREHOLDING GUIDELINE GUIDELINE MET 2 Executives R Adams A Gazal C Green D Lane R McCarthy S Mosse M Smith A Gillespie 767,212 281,118 581,961 348,018 228,860 149,194 741,133 147,259 1,953,945 24 September 2023 262,500 337,500 285,000 270,000 287,500 315,740 255,000 7 April 2025 1 October 2013 10 April 2022 15 October 2023 18 February 2024 19 November 2017 18 November 2025 ✔ ✔ ✔ ✔ 1. Value is calculated through reference to the closing Perpetual share price at 30 June 2022 of $28.88. 2. Executives have a five-year transition period to meet their shareholding requirement. Hedging and share trading policy Consistent with Corporations Act obligations, Perpetual’s Share Trading Policy prohibits employees and Directors from entering into hedging arrangements in relation to Perpetual shares. Share dealing approval Perpetual has a policy for trading in Perpetual shares which stipulates certain trading black-out periods and requires all employees to seek pre-trade approval via an automated platform. A copy of the policy has been lodged with the ASX and appears on Perpetual’s website 1. 1. perpetual.com.au/about/corporate-governance/informed-market-and-share-dealings. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 2022 41 6. Aligning Perpetual Group performance and reward 6.1 Alignment of performance and reward to strategy In September 2019, Perpetual launched our five-year strategy and purpose of ‘Enduring Prosperity’. Successful delivery of the strategy is defined by clear client, people, strategic and financial measures which link our annual targets with our long-term strategic objectives; that is, balancing short-term financial outcomes with the necessary investments for long-term sustainable growth. – for our clients, enduring prosperity means pursuing a strategy that is focused on delivering quality products and outstanding service; – for our people, enduring prosperity means empowering them to deliver superior performance and to explore new capabilities and establish a global footprint; – for our shareholders, enduring prosperity means delivering above average, sustainable growth over the medium to long term; and – for the community, enduring prosperity means delivering a positive contribution to the sustainability of society. In our view, this is best achieved by having highly engaged people creating superior client outcomes, which in turn delivers underlying earnings growth for shareholders. Our people strategy 2024 strategy Our purpose Enduring Prosperity Our vision Most trusted in Financial Services Our values Excellence, Integrity, Partnership People vision To enable our People and Perpetual to do great things and grow Client First Future Fit New Horizons Exceptional products Outstanding service Empowering our people to deliver high performance New capabilities Global footprint – Exceed client needs with products and services – Improve client connectivity and delivery through innovative digital solutions – Set industry leading standards in all that we do – Agile, efﬁcient and scalable operating platform to manage growth – A strong culture where people are positively challenged and empowered within our stated risk appetite – Contemporary technology – Buy or build global investment & distribution capabilities – Improve and diversify our growth potential via an active M&A agenda across our businesses – Deliver innovative solutions to our clients Transform our Service Offering – Deﬁne and execute our People Technology Roadmap – Enhance our client-centric self-service model – Leverage our data and analytics capability to provide value- added insights – People response to COVID-19 including ongoing mental health and wellbeing strategy. Build a culture that is Future Fit – Redeﬁne our Future Workplace and employee experience Support Business Growth – Globalise our operating model – People advice and execution for – Connect our people to Perpetual’s M&A agenda EVP (incl. our purpose, values, strategy and brand) – Grow our Leaders to build high performing teams – Deﬁne and execute a future-focused Talent Acquisition & Management strategy and solution – Refresh our D&I strategy and approach – Ensure our Performance & Reward framework supports the Group strategy and complies with regulatory requirements Work with the best — Work where + how you work best — Be your best Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report42 Variable remuneration is designed to reward Executive KMP for their performance over the course of the year, provided they have achieved performance standards based on financial and non-financial measures focused on delivering short and long-term value. The variable remuneration structure is designed to drive business strategy with outcomes being aligned to shareholders. 6.2 Features of the Executive KMP Variable Incentive Plan 1 The Variable Incentive Plan has a cash component and an equity component split into three parts, unhurdled Share Rights and two tranches of hurdled Performance Rights with three and four-year performance testing and vesting schedules. All equity is restricted from sale for a four-year period. Under the Variable Incentive Plan, the full Variable Incentive, and the total value of Share and Performance Rights granted annually, is subject to a holistic assessment of Group, divisional and individual Executive performance at year-end, of which the annual group balanced scorecard is a key input. Remuneration mix Executive KMP have a significant portion of their remuneration linked to performance and risk, with the Board able to risk-adjust remuneration if required. There is a strong alignment to long-term incentives for Executive KMP, as Perpetual believes in meaningful equity ownership for this key group. Total remuneration continues to be determined using a range of factors including Perpetual’s market peers. The table below shows the FY22 on-target remuneration mix for Perpetual Executive KMP. 2 GROUP EXECUTIVES 38–55% 15–20% 15–22% 15–22% Fixed CEO 35% 13% 24% 28% 0% 20% 40% 60% 80% 100% Variable Cash Variable Equity Unhurdled Variable Equity Hurdled 1. Changes foreshadowed to CEO and Executive remuneration in the Chairman’s letter and Section 1 above for FY23 are not described in this section.. 2. Actual remuneration mix will vary from year to year due to promotions and remuneration changes. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202243 Equity components of the Variable Incentive Plan The diagram below summarises the structure and vesting schedules of the Executive KMP Variable Incentive Plan awards for FY22. Initial Performance Year for Variable Incentive y t i u q E e v i t n e c n l I e b a i r a V h s a C 25% of Variable Incentive Equity subject to a 4-year CAGR Absolute TSR hurdle Performance Rights 25% of Variable Incentive Equity subject to a 3-year CAGR Absolute TSR hurdle Performance Rights Restricted shares entitled to dividends 50% of Variable Incentive Equity Share Rights Restricted shares entitled to dividends s n o i t c i r t s e r l m o r f e s a e e R / g n i t s e V 30 June 30 June 30 June 30 June 30 June 30 June September September The absolute three and four-year TSR performance hurdles will be aligned to the following achievement scale. COMPOUND ANNUAL GROWTH IN TSR PERCENTAGE OF RELEVANT TRANCHE OF PERFORMANCE RIGHTS THAT VEST Less than 7% per annum 0% 7% to 10% per annum Straight-line vesting from 50% to 100% 10% or above per annum 100% Malus and Clawback provisions give the Board the discretion to claw back vested and unvested equity. The number of Performance Rights granted for FY22 performance will be determined by dividing the relevant variable incentive award dollar amount by the five-day VWAP1 prior to the grant date. This approach is consistent with the practice adopted every year for Executive KMP awards. 1. The Volume Weighted Average share price provides the average price that a security has traded at throughout the day or agreed period. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 44 6.3 Approval processes The Board, through the Chairman of the Board, conducts a formal review of the performance of the CEO and other Executive KMP on an annual basis. For the CEO, the Chairman, in consultation with the PARC, makes recommendations directly to the Board for approval of the Variable Incentive allocation. For other Executive KMP, the CEO makes recommendations to the PARC on Variable Incentive allocations. Once recommendations are reviewed and endorsed, the PARC makes recommendations for the Executive KMP to the Board for final approval. Termination of employment Treatment on termination of employment is as follows. EVENT UNPAID VARIABLE INCENTIVE – Resignation – Termination for poor performance – Termination by Perpetual on notice No further variable incentive is payable in respect of the current or prior performance years as at the date of notice. RIGHTS Forfeited. A pro-rated variable incentive based on the period of the performance year completed (excluding notice paid in lieu) and full year performance score will be delivered at the normal time. The Performance Tested Equity Component will be granted as Performance Rights (subject to normal terms and conditions) and the remaining incentive will be paid in cash. Retained under the plan with restriction periods and hurdles (where applicable) continuing to apply. RESTRICTED SHARES Retained under the plan with restriction periods continuing to apply. Retained under the plan with restriction periods continuing to apply. – Summary dismissal No further variable incentive is payable in respect of the current or prior performance years as at the date of notice of termination. Forfeited. Forfeited. – Death A pro-rated variable incentive based on the period of the performance year completed (excluding notice paid in lieu) and full year performance score will be delivered at the normal time. Immediate vesting (subject to Board approval). The Performance Tested Equity Component will be granted as Performance Rights (subject to normal terms and conditions) and the remaining incentive will be paid in cash. – Mutual agreement – Retirement (requires Board approval) 1 – Redundancy – Total and permanent disablement (TPD) A pro-rated variable incentive based on the period of the performance year completed (excluding notice paid in lieu) and full year performance score will be delivered at the normal time. The Performance Tested Equity Component will be granted as Performance Rights (subject to normal terms and conditions) and the remaining incentive will be paid in cash. Retained under the plan with restriction periods and hurdles (where applicable) continuing to apply. Immediate conversion to unrestricted shares (subject to Board approval). Retained under the plan with restriction periods continuing to apply. 1. In circumstances where the Board concludes at its absolute discretion that a participant is retiring. The Board needs to be satisfied that the Executive does not intend to engage in any work similar to their role at Perpetual. Six months after retirement, the Executive must provide a signed declaration affirming that this requirement has been adhered to, subject to the approval of the Board, otherwise all rights will lapse. The Board may also decide to delay payment of any unpaid variable incentive until this requirement has been satisfied. Restricted shares under the Variable Incentive Plan are not impacted by the six-month declaration requirement and will convert to unrestricted shares in accordance with the terms of the Variable Incentive Plan. This approach to treatment of incentives on termination of employment in conjunction with the broader plan design strengthens the alignment of interests between Executive KMP and shareholders over the long term. The extended vesting and restriction periods encourage Executive KMP to make decisions that are in the long-term interests of shareholders, with implications of those decisions extending beyond an Executive KMP’s tenure at Perpetual while they continue to have shares retained in the plan. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202245 6.4 Dilution limits for share plans Shares awarded under Perpetual’s employee share plans may be purchased on market or issued subject to Board discretion and the requirements of the Corporations Act 2001 and the ASX Listing Rules. As at 30 June 2022, the proportion of unvested shares and Performance Rights (excluding unallocated shares as a result of forfeitures) held in Perpetual’s employee share plans as a percentage of issued shares was 2.50%. This has increased from FY21’s percentage of 2.24%. 7. Variable reward 7.1 FY22 Variable Incentive outcomes In determining annual Variable Incentive outcomes for the Executive KMP, the Board seeks to balance shareholder and client outcomes, while encouraging and rewarding Executive KMP for creating sustainable shareholder value. Performance, risk and reward are considered within the context of the longer-term business strategy. The table below provides the total Variable Incentive outcome (both cash and equity portions) received by the Executive KMP for the FY22 performance year. The Variable Incentive outcomes determined by the Board for the CEO and other Executive KMP for FY22 are, in the Board’s judgement, appropriate. These decisions were made in consideration of business performance as measured against the Company scorecard, divisional and individual performance. VARIABLE INCENTIVE CASH $ VARIABLE INCENTIVE UNHURDLED EQUITY 1 $ VARIABLE INCENTIVE HURDLED EQUITY 2 $ TOTAL VARIABLE INCENTIVE $ FY22 VARIABLE INCENTIVE TARGET $ FY22 VARIABLE INCENTIVE (AS % OF TARGET) 3 % MAXIMUM OPPORTUNITY @ 175% OF TARGET 4 $ FY22 VARIABLE INCENTIVE (AS % OF MAXIMUM VI OPPORTUNITY) % NAME Current Executives R Adams A Gazal C Green D Lane 530,000 942,280 1,090,680 2,562,960 2,417,886 150,000 150,000 150,000 450,000 450,000 325,000 355,338 355,338 1,035,676 1,035,676 300,000 300,000 300,000 900,000 900,000 R McCarthy 300,000 300,000 300,000 900,000 750,000 S Mosse M Smith A Gillespie Total 172,800 172,800 172,800 518,400 480,000 272,051 334,895 334,895 941,841 1,023,740 225,000 225,000 225,000 675,000 675,000 2,274,851 2,780,313 2,928,713 7,983,877 7,732,302 1. Variable Incentive Equity awarded as Share Rights with tenure based hurdles only. 2. Variable Incentive Equity awarded as Performance Rights with an absolute Total Shareholder Return hurdle. 3. Represents the total Variable Incentive outcome for FY22 as a percentage of target Variable Incentive. 4. Maximum opportunity Executives may earn under the CEO and Group Executive Variable Incentive Plan. 106% 100% 100% 100% 120% 108% 92% 100% 103% 4,231,301 787,500 1,812,433 1,575,000 1,312,500 840,000 1,791,545 1,181,250 13,531,529 61% 57% 57% 57% 69% 62% 53% 57% 59% Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report46 7.2 FY22 Performance highlights – Perpetual delivered strong financial performance in FY22. Underlying profit after tax (UPAT) was $148.2m, exceeding prior year by +21% and the Board-approved business plan by 3%. Underlying EPS of $2.58 represented growth of +18 % on prior year. Perpetual delivered growth in profit across each division: • Perpetual Corporate Trust delivered Underlying profit after tax (UPBT) of $72.6m, representing growth of $8.9m or 13.9% on FY21. Continued organic growth was complemented by the acquisition of Laminar Capital in early FY22, which expanded PCT’s product and service line offerings to new and existing clients. PCT’s total funds under administration (FUA) was A$1.09 trillion as at 30 June 2022, up 18% on 30 June 2021. PCT’s continued growth demonstrates the critical role it performs as a fiduciary, providing important infrastructure to support the Australian banking and financial services markets. • Perpetual Private delivered UPBT of $44.3m in FY22, representing growth of $9.3m or 26% on prior year. Perpetual Private delivered a ninth consecutive year of positive net flows, with AUM finishing the year at $17.4b, representing incremental growth of 2% on 30 June 2021, despite a volatile Q4. The acquisition of Jacaranda Financial Planning in early FY22 provided an opportunity for Perpetual Private to add a high-growth business with a high-quality advice model and complementary culture. • While Perpetual’s Asset Management businesses delivered strong financial performance, challenges in improving Group net flows remain. PAM International delivered UPBT of $52.9m in FY22 (growth of $12.1m on FY21), while PAM Australia delivered UPBT of $49.9m (growth of $7.8m on prior year). While net flows across some channels were disappointing, Perpetual continues to invest in new channels and strategies that offer future growth opportunities in FY23 and beyond. – Following the successful closing of Barrow Hanley’s inaugural Collateralised Loan Obligation (CLO) fund in FY22, Perpetual expects to attract approximately A$2.0 billion (US$1.4 billion) of new flows over the next 12–18 months. The first of three CLO’s is currently being constructed and is expected to launch in 1H23. – A total of seven US mutual funds were launched in FY22, expanding access for Barrow Hanley and Trillium to broader distribution opportunities in the key US intermediary segment. In addition, as part of a focused effort to better access European and Asian institutional investors, multiple UCITS sub-funds were launched in FY22, with pleasing early interest from investors. – A suite of active ASX Exchange Traded Funds (ETFs) were launched for our Australian and global investment teams in FY22, providing important channel diversification for Perpetual and another platform for clients to access Perpetual’s range of investment strategies. – When considered collectively, despite continued pressure on net flows in FY22, progress against the above strategic priorities and strong UPBT growth in each division were ultimately viewed to be a strong overall result in the context of the current economic environment. – Perpetual’s acquisitions translated into tangible shareholder value in FY22. Barrow Hanley exceeded the stated target of 20% EPS accretion in the first full year following acquisition; Trillium continued to deliver positive net flows and profit growth; while the acquisitions of Jacaranda Financial Planning and Laminar Capital, which were completed early in FY22, are both performing ahead of expectations for key growth metrics and financials. – Perpetual’s group Net Promoter Score (NPS) outcome of +49 was improved on FY21’s outcome of +44 and remains above Perpetual’s long-term target of +40. – Perpetual’s investment teams delivered strong investment performance relative to agreed benchmarks, particularly in Australian Equities and Barrow Hanley: • Barrow Hanley’s investment performance was very strong, with 92% of equity strategies and 85% of all strategies outperforming their benchmarks over three years to 30 June 2022. • 91% of Perpetual’s Australian Equities funds were outperforming their benchmarks over the three years to 30 June 2022. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202247 7.3 FY22 Company scorecard performance In FY22, the Perpetual scorecard was weighted 60% to financial measures and 40% to non-financial measures that are designed to deliver value in current and future years, within appropriate risk tolerance levels. We set our balanced scorecard each year based on the business and financial plan approved by the Board that is aligned to our strategy. Under our Variable Incentive Plan, our balanced scorecard acts as the starting basis for evaluating current and future value creation with a risk management overlay. This section explains the performance outcomes delivered for FY22. STRATEGIC MEASURE WEIGHT FULL YEAR PERFORMANCE Outcome Comments Financial Group UPAT 1 60% 30% 5% 5% Perpetual Corporate Trust (PCT) – New business revenue Perpetual Asset Management Australia (PAMA) – Annualised Net Revenue (ANR) 5% Perpetual Asset Management International (PAMI) – Net Flows (+ANR) Target: $143.8m Actual: $148.2m Above plan Target: $14.1m Actual: $20.5m Above plan Target: -$1.1m Actual: -$2.8m Below plan Target: -A$0.3b Actual: -A$5.0b Below plan Perpetual Private (PP) – Net Flows 5% Target: $892m Actual: $999m Above plan Underlying Earnings Per Share (EPS) 10% Target: $2.54 Actual: $2.58 Above plan – FY22 UPAT is $4.4m (3%) above plan and $25.4m (21%) above last year’s actual outcome of $122.8m. Growth in UPAT was achieved across all four divisions in FY22, with Perpetual Corporate Trust (PCT) growing UPBT by $8.9m (13.9%), Perpetual Private by $9.3m (26%), PAMA by $7.8m (18%) and PAMI by $12.1m (30%). – PCT delivered an above-plan outcome of $20.5m, driven by key client wins across all business lines. PCT continues to deliver on a clear growth strategy, which includes organic growth, new products and revenue streams, and exploration of appropriate inorganic growth opportunities. – Strong performance in the wholesale channel (+$1.8m ANR) was offset by weaker institutional flows (-$2.5m ANR). Net inflows into the Barrow Hanley Global Equity Fund and Credit and Fixed Income strategies were offset by continued net outflows across a range of large-cap Australian Equity strategies. – The FY22 outcome of -A$5.0b is substantially below plan. The headline number was driven primarily by outflows in Barrow Hanley’s lower margin Fixed Income and US Equity strategies. Outflows were concentrated primarily on the US institutional channel. Barrow Hanley’s International, Global and Emerging Market Equity strategies each delivered positive net flows in FY22. – Trillium continued to deliver positive net flows, despite market volatility, delivering full year positive net flows of $0.6b in FY22. – Net Flows of $999m in FY22 represented an above-plan outcome and an outcome that was 28% above the FY21 full year result of $783m. FY22 represented the 9th consecutive year of positive net flows for Perpetual Private. At 30 June 2022, funds under advice for Perpetual Private was $17.4b, up slightly on prior year (30 June 2021: $17.0b). – Net Flows benefited from $470m worth of net inflows from Laminar Capital, representing the potential for relevant products and services to be offered across business lines following recent acquisitions. The FY22 result was delivered despite ongoing COVID-19 restrictions which limited face-to-face client meetings. Notable contributions were delivered from Native Title and Philanthropy clients and above-forecast Jacaranda flows. Outflows from legacy low margin clients partially offset the full year result. – Underlying EPS of $2.58 represented growth of +18% on prior year, driven by underlying profit growth across all business units in FY22. This improvement in underlying EPS in FY22 also translated into an improved dividend per share (DPS). Total dividends of 209cps were declared in respect of FY22, representing growth of 16% on FY21. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report48 STRATEGIC MEASURE WEIGHT FULL YEAR PERFORMANCE 10% 5% Client First Maintain client advocacy – external Net Promoter Score (NPS) performance Target: Maintain above 40 Actual: 49 Above plan Outcome Comments PAMA 2.5% Funds: 91% Mandates: 66% Above plan % of funds/ mandates meeting investment objectives. Funds Target: 60% Mandates Target: 50% PAMI 2.5% Funds: 79% Above plan Outcome Comments Future Fit Mood monitor 10% 5% High performer voluntary turnover Stable At plan Target: Less than 11% Actual: 9% Above plan Women in Leadership (WiL) Target: 38% Actual: 34% Below plan Delivery of key projects 5% Board assessment At plan – The FY22 outcome of 49 is substantially above prior year (44) and Perpetual’s goal of maintaining NPS above 40. The result was driven by improvements across each division: • PAMA: 46 in FY22 (38 in FY21). • PCT: 61 in FY22 (58 in FY21). • Perpetual Private: 42 in FY22 (37 in FY21). – NPS scoring was extended to PAMI in FY22, however not all results were collected prior to 30 June, meaning the numbers have been excluded from the overall results. Benchmark scores for all completed teams as at 30 June were sitting above 70. PAMI NPS outcomes will be included in the headline numbers and divisional breakdown in FY23. – PAMA’s Australian equities investment performance continues to be strong with 91% of equities funds outperforming their benchmarks over the three years to 30 June 2022, which positions these strategies well for future flows. – Strong investment performance in PAMA’s Australian equities strategies generated a total of A$10.6 million in performance fees for the full year. – BH investment performance relative to agreed benchmarks remained very strong in 2022 with 92% (25/27) of investment strategies meeting objectives over three years. – Market volatility and sector rotation (including a shift to energy in early 2022), resulted in 29% (2/7) of Trillium Asset Management’s funds meeting their performance objectives at 30 June 2022. – Employee sentiment remained stable during FY22 despite ongoing management of COVID-19, significant business activity and a higher level of aggregate turnover. – Retention levels for employees receiving high performance ratings in FY21 have remained substantially below the organisation-wide turnover rate. The full year outcome of 9% voluntary turnover of top talent represents a strong outcome for FY22. For Perpetual, FY22 represented a return to pre-COVID employee turnover rates, challenges in filling some open vacancies and increasing pressure on wages across many parts of the organisation. In response, Perpetual made a number of proactive changes to benefits, leave entitlements and other flexibility initiatives to further enhance the overall employee experience. – The year-end outcome of 34% is below plan and represents a move backwards against our stated 2024 WiL representation target of 40%. Despite continued efforts, meaningfully improving female representation in leadership and asset management roles remains a challenge for Perpetual. Renewed focus on female talent development, attraction and retention as well as an enhanced reporting rhythm to increase transparency and accountability to targets have been implemented to drive improvements in FY23. – Of 24 formally funded projects planned to be delivered in FY22, 83% of projects (20 projects in total) were assessed to be meeting business objectives as defined for FY22 (based on objective implementation review outcomes). Projects are reviewed quarterly and the project portfolio has been reviewed leading into FY23. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202249 STRATEGIC MEASURE WEIGHT FULL YEAR PERFORMANCE New Horizons 20% Outcome Comments PAMA Gross Flows 5% Target: AU $3.2b Actual: AU $3.5b Above plan PAMI Gross Flows 5% Target: US $8.2b Actual: US $6.7b Below plan BH Underlying EPS accretion (excl. FX) 3.3% 3.3% Barrow Hanley and Trillium Manageable Profit vs. Business Plan for FY22 Target > 20% Actual 23.7% At plan Trillium Above plan Barrow Hanley Below plan Execution of value-add initiatives to core businesses 3.3% Board Assessment At plan – PAMA Gross Flows of AU $3.5b in FY22 were above the business plan of AU $3.2b. Outperformance was driven through the wholesale channel, with Credit and Fixed Income and Global Equity strategies the strongest performers. Importantly, as part of our focus on investing for future growth a number of initiatives were launched in FY22: • Perpetual launched three active ETFs during FY22 including the PPT Ethical SRI Fund (ASX: GIVE), PPT Global Innovation Share Fund (ASX:IDEA) and the Barrow Hanley Global Share Fund (ASX:GLOB). • Perpetual established an operating model that will facilitate the efficient launch of future active ETFs. – The successful build-out and early momentum of Perpetual’s Global Distribution team was recognised as being critical to Perpetual’s momentum in FY22. The inclusion of Gross Flows (in addition to Net Flows) aimed to both (i) increase the overall weighting of growth/flows in the overall scorecard; and (ii) allow for a sharper focus on sales in new channels and geographies. – The full year outcome is below plan, with outperformance in the UK and Europe, offset by weaker gross flows in the US Institutional channel. Despite this, several achievements were noted in FY22: • Trillium Asset Management continues to generate strong client interest, with net positive inflows of A$639m in FY22. • Barrow Hanley continues to see strong interest in its various higher margin global equities capabilities, with particularly strong flows into the UK and EU in FY22. • ESG funds continue to offer opportunities for future growth. Following the launch of a Global Value ESG UCITS sub-fund for Barrow Hanley in mid-FY22, two additional ESG UCITS sub-funds were launched in Q4 FY22, providing a platform for future growth into FY23. – Underlying EPS accretion of 23.7% excl. FX (or 20.4% absorbing the unfavourable FX) exceeded the EPS accretion target set by the Board on announcement of the Barrow Hanley acquisition. – Trillium delivered strong client, advocacy, and financial performance in FY22. Strong markets and investment performance in early FY22, combined with continued strong flows across the full year translated into a manageable profit result that was above plan in FY22. – Barrow Hanley continued to face outflows in both US Equities and Credit and Fixed Income in FY22. While net inflows into higher margin Global Equity and Emerging Market Equity products helped to offset these headwinds, Barrow Hanley delivered manageable profit that was below plan in FY22. – Launch of Barrow Hanley’s inaugural Collateralised Loan Obligation (CLO) Equity Fund. The business case approved by PPT Board included a commitment to provide seed funding. US$121m of equity was raised, with the first fund expected to deliver AUM of US$400m in FY23. – US Mutual Fund launch. Key component of strategy to diversify Barrow Hanley earnings from institutional clients into the wholesale channel (noting at acquisition Barrow Hanley’s client base was 100% institutional). At 30 June 2022 Barrow Hanley has US $476m in AUM. – Perpetual established an Irish UCITS umbrella in FY22, as part of a focused effort to meet European client demand for both Trillium and Barrow Hanley ESG strategies. AUM in this UCITS umbrella exceeded US $500m at 30 June 2022. 1. Perpetual reports profit on both a statutory basis (NPAT) and on an underlying (UPAT) basis. As disclosed previously UPAT adjusts NPAT for significant items that are material in nature and do not reflect the normal operating activities and excludes the non-cash tax-effected amortisation of acquisition intangibles. Adjusted items are clearly defined, consistently applied and disclosed in accordance with ASIC Regulatory Guide – 230 – Disclosing “Non IFRS information”. UPAT is provided as it is considered useful for investors to gain a better understanding of Perpetual’s financial results from normal operating activities. This measure is an appropriate metric for assessing business and Executive performance within the context of the global business strategy. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report50 7.4 FY22 CEO Variable Incentive commentary Individual Variable Incentive awards are determined through an assessment of performance against the Group balanced company scorecard, divisional performance against agreed priorities and individual performance, which includes an assessment of behavioural expectations for all Executive KMP. Executive KMP must also meet risk and compliance requirements to be eligible to receive a Variable Incentive payment. The relative weights of Company and divisional performance reflect our primary focus on delivering strong Group outcomes for our shareholders. CEO outcomes are weighted 70% Perpetual Group performance and 30% individual performance. Commencing FY22, Executive KMP have a weighting of 60% Perpetual Group performance and 40% division and individual performance. The combined focus on Perpetual Group and divisional/individual performance ensures shared accountability for overall Perpetual performance among Executive KMP, balanced with the need to deliver on divisional priorities. CEO Other Executive KMP PERPETUAL PERFORMANCE DIVISIONAL PERFORMANCE INDIVIDUAL PERFORMANCE 70% 60% 0% 30% 40% FY22 CEO performance and reward outcomes The Board has considered the individual contribution of the CEO for FY22 with reference to progress against key strategic and individual priorities agreed at the commencement of the performance year. In addition to overall responsibility for Perpetual’s performance against the company scorecard, the CEO had a number of achievements during FY22 which are highlighted below: – Throughout FY22, the CEO continued to make decisive, balanced and effective decisions regarding the strategic investments required for Perpetual to achieve its global growth objectives and ultimately deliver on its current strategy. – The CEO continues to build his Executive team, assisting their development and overall team dynamics. In FY22, this involved utilising an external executive assessment programme to identify gaps and opportunities across his team. – As Perpetual built its global distribution capability, the CEO continued to provide direction and was involved in the sourcing of key staff across US and UK/Europe and has provided regular support to Perpetual’s Global Head of Asset Management Distribution. – The CEO continues to lead Perpetual through a highly uncertain period, achieving consistently high employee sentiment results, driven by an open and transparent internal communication programme. As Chair of Perpetual’s D&I Council, he has driven a full review and restructure of the refreshed strategy. In considering each of the above items, the Board has determined to award the CEO an overall incentive outcome of 106% of target, or 61% of the maximum, in respect of FY22, reflective of both strong Group and individual performance. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202251 7.5 Alignment of Variable Incentive outcomes to five-year Group performance One of Perpetual’s guiding principles for remuneration is that the remuneration structure should balance value creation for our shareholders, clients and employees. This section displays the degree of alignment between Perpetual Group performance and remuneration outcomes for Executive KMP over the last five years. The table below shows Perpetual’s five-year performance across a range of metrics and corresponding incentive outcomes. Underlying profit after tax – UPAT 1 Earnings per share – UPAT Total dividends paid/payable per ordinary share 2 Closing share price 1-year TSR 3-year CAGR TSR 4-year CAGR TSR 5-year CAGR TSR CEO – Variable Incentive as % of target 3,4,5 CEO – Variable Incentive as % of maximum target 3,4,5 GE – Average Variable Incentive as % of target 3 GE – Average Variable Incentive as % of maximum target 3 CEO – % of Variable Incentive equity awarded as hurdled 6 GE – % of Variable Incentive equity awarded as hurdled 6 FY18 30 JUNE 2018 139.0 297 275 41.6 -21 -1 2.1 8 34 19 76 43 NA 0 FY19 30 JUNE 2019 FY20 30 JUNE 2020 FY21 30 JUNE 2021 FY22 30 JUNE 2022 115.9 246 250 95.1 200 155 122.8 218 180 148.2 258 209 42.24 29.67 40.05 28.88 8 7 2.2 3 65 37 56 32 50 0 -26 -13 -0.7 -3 60 34 48 27 100 100 40 4 -3.2 5 100 57 93 53 50 50 -23 -6 -2.7 -6 106 61 103 59 54 50 $m cps cps $ % % % % % % % % % % 1. UPAT & EPS – UPAT from five-year profile. 2. Dividends paid are for the respective financial year. 3. CEO Variable Incentive outcomes for FY18 are for Perpetual’s previous CEO, Mr Lloyd. 4. Mr Lloyd ceased employment with Perpetual in FY18, and therefore FY18 represents variable cash only given the forfeiture of Variable Incentive equity for FY18. 5. FY19–FY22 Variable Incentive outcomes are for Mr Adams. 6. Excludes sign-on grants. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report52 UPAT ($M) EPS 3-YEAR TSR (CAGR) 1 4-YEAR TSR (CAGR) 1 SHAREHOLDERS 139 116 95 148 297 123 246 7% 258 4% 218 200 -1% -6% -13% CLIENTS NPS 2 49 45 44 2% 2% 40 34 -1% -3% -3% 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 1. Three and four-year CAGR TSR disclosed to align with the performance hurdle period of the CEO and Group Executives from FY21. 2. NPS FY19 rebased from 39 to 40 to reflect new target markets. 7.6 KMP Growth Incentive Perpetual is undergoing strategic transformation to deliver improved total shareholder returns. Over the past two years, there have been a number of strategic acquisitions and investments across the Company and the next three to five years will be a critical period for Perpetual to realise the scale and benefit of these investments and deliver improved returns for shareholders. In FY22 the Board reviewed whether the current long-term incentive compensation program in place for the Executive KMP team should be enhanced to provide additional incentives for Executive KMP to realise the benefits of these investments and deliver strong returns for shareholders. As a result of this review, the Board decided to award a long-term incentive (Growth LTI) to Executive KMP to deliver growth above the existing KMP Variable Incentive scheme reward’s stretch performance. Key terms of the structure are outlined below: – Under the Growth LTI, a grant of Performance Rights will be made to Executive KMP in September 2022. The threshold for vesting will be set at 10% CAGR in absolute TSR, with 100% vesting at 15% CAGR absolute TSR (noting vesting commences at 0% for delivering 10.0% CAGR absolute TSR). The CAGR absolute TSR performance range for existing Hurdled Equity is 7.0%–10.0%, meaning value is delivered under this award only where the existing stretch hurdle is exceeded. The Board believes this represents a significant degree of stretch performance when compared to the TSR achieved by the Company in recent years, which will require ongoing significant expansion in underlying EPS. – The Growth LTI will vest in three equal tranches across three, four and five years, subject to meeting the relevant CAGR absolute TSR performance hurdle. Any Performance Rights that vest at three and four years will be retained as restricted shares until five years post the initial grant date. Performance Rights that do not vest are forfeited and not retested. The five-year performance and restriction period for the LTI award extends the time horizon of Executive KMP long-term incentive arrangements to align to the longer-dated timeframe of the Company strategy and provides an alignment mechanism for the core executive team during the integration of these acquisitions and strategic investments. – All other terms and conditions of the awards will be consistent with the existing Hurdled Equity component of the Executive KMP Variable Incentive. The Board will retain discretion to not vest a portion or all of the award if they are not comfortable that all other terms and conditions of the award have been satisfied (including, but not limited to, compliance with and alignment to the Company’s Risk Appetite Statement). – Individual Growth LTI awards are provided in the below table. The Board has determined individual awards on a Fair Value basis given the degree of stretch embedded in the performance hurdles. The Fair Value calculation will be performed at grant date and will be disclosed in the FY23 Remuneration Report, however an estimate of the Face Value of each award is provided in the footnote below. The Board will continue to allocate awards under the existing Variable Incentive Plan on a Face Value basis. The Fair Value amounts in the table below will be expensed over the three to five-year life of the award. – Further details of the CEO award will be available in the Company’s Notice of Meeting for the AGM in October 2022, with full details on the awards made to Executive KMP provided in the FY23 Remuneration Report. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 2022EXECUTIVE R Adams C Green A Gazal A Gillespie D Lane M Smith R McCarthy S Mosse 53 GROWTH LONG-TERM INCENTIVE: FAIR VALUE 1 $1,400,000 $700,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 1. Final fair value calculations will be performed at the grant date of 1 September. The estimated Face Value of the CEO (R Adams) award is $4.6m, the estimated Face Value of the award for the CFO (C Green) is $2.3m, and the estimated Face Value for each remaining KMP is $1.95m. These amounts will be confirmed at the grant date. 7.7 Vesting outcomes of prior year equity awards In September 2021, some Variable Incentive Unhurdled Equity awarded for the FY19 financial year vested for eligible Executive KMP. These awards are now held under restriction for an additional two-year period, aligning Executive KMP to shareholder outcomes for a full four-year period. The current Hurdled Equity structure was introduced for the CEO in FY19. Therefore 50% of the CEO’s FY19 Variable Incentive Equity was awarded as unhurdled equity and 50% as hurdled equity with an absolute TSR hurdle and vesting to occur over three and four years. Other Executive KMP did not start to participate in this scheme until FY20 and consistent with plan design at the time, the equity component of the grants made to other Executive KMP for FY19 were awarded entirely as unhurdled equity. The value of this equity at vesting was, on average, 67% of the original Executive KMP’s Variable Incentive equity targets (or 38% of the original maximum equity target). – The overall outcome of 67% of target (or 38% of maximum) occurred despite initial grants being positioned at, on average, 58% of Variable Incentive targets (or 33% of maximum). An increase in the Perpetual share price in the period leading up to vesting in September 2021 increased vesting outcomes for Executive KMP. – However, the two-year restrictions on dealing and recent declines in Australian and global share markets mean that as at 1 July 2022 these restricted shares were valued at, on average, 47% of the original target or 27% of maximum. The Board believes this outcome provides appropriate alignment between Executive KMP remuneration and shareholder experience. The Board did not believe it was necessary to adjust FY19 equity vesting outcomes given no hurdle was originally applied to vesting of outcomes, no material risk events were identified and Executive KMP are required to continue to hold the equity for an additional two-year restriction period. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report54 8. Data disclosures – Executive KMP Remuneration of Executive KMP – Statutory Reporting SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS EQUITY-BASED BENEFITS 5 NAME Current Executives CASH SALARY 1 $ VARIABLE INCENTIVE CASH 2 $ NON-MONETARY BENEFITS 3 $ R Adams 2022 2021 A Gazal 2022 2021 C Green 2022 2021 D Lane 2022 2021 R McCarthy 2022 2021 S Mosse 2022 2021 M Smith 2022 2021 A Gillespie 2022 2021 Total 2022 Total 2021 1,277,776 1,147,498 530,000 500,000 493,333 435,750 645,858 592,639 529,165 493,544 511,667 428,566 545,833 472,816 606,626 575,045 150,000 116,350 325,000 281,125 300,000 336,000 300,000 250,800 172,800 136,285 272,051 229,174 479,167 278,825 225,000 102,945 – – – – – – 12,882 6,123 – – – – – – – – 5,089,425 2,274,851 4,424,683 1,952,679 12,882 6,123 OTHER 4 $ 82,196 26,867 15,878 9,143 1,651 (12,352) 11,806 5,880 7,882 (2,349) – (23,269) 21,086 (17,784) 10,256 (10,824) 150,755 (24,688) SUPERANNUATION OTHER LONG-TERM BENEFITS 6 VARIABLE INCENTIVE EQUITY 7 $ $ $ PERFORMANCE RIGHTS TERMINATION PAYMENTS 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 15,411 200,000 190,411 21,722 21,721 9,575 8,087 15,062 10,840 10,752 9,208 (11,179) (33,206) 10,573 10,418 10,531 10,531 10,465 8,544 77,501 46,143 645,029 417,525 69,329 25,660 237,644 270,691 192,581 171,161 173,222 119,882 101,601 56,241 207,922 212,860 82,362 22,704 1,709,690 1,296,724 $ – – – – – – – – – – – – 11,664 54,657 SHARES $ 170,988 161,993 23,074 189,136 – – – – – – – – – – 20,607 75,835 111,558 80,168 123,222 134,825 214,669 426,964 $ – – – – – – – – – – – – – – – – – – TOTAL $ 2,752,711 2,300,654 786,189 809,126 1,250,215 1,167,943 1,082,186 1,046,916 1,018,256 843,350 876,414 753,326 1,143,216 1,034,826 943,808 497,773 9,852,995 8,453,914 1. Cash salary is the ordinary cash salary received in the year including payment for annual, long service, sick or other types of paid leave taken. 5. Share-based remuneration has been valued using the binomial method, which considers the performance hurdles relevant to each issue of equity 2. Variable Incentive cash payments consist of cash payments to be made in September 2022 for the CEO and Group Executives. 3. Non-monetary benefits represents those amounts salary sacrificed from fixed remuneration to pay for benefits such as leased motor vehicles, car parking, and purchased leave. 4. Other short-term benefits relate to: – salary continuance and death and total and permanent disability insurance provided as part of the remuneration package; and – the value of accrued annual leave for FY22 less leave taken which is depicted as cash salary. instruments. The value of each equity instrument has been provided by PricewaterhouseCoopers. Share-based remuneration is the amount expensed in the financial statements for the year and includes adjustments to reflect the most current expectation of vesting of LTI grants with non-market condition hurdles. For grants with non-market conditions including earnings per share hurdles, the number of shares expected to vest is estimated at the end of each reporting period and the amount to be expensed in the financial statements is adjusted accordingly. For grants with market conditions such as total shareholder return hurdles, the number of shares expected to vest is not adjusted during the life of the grant and no adjustment is made to the amount expensed in the financial statements (except if service conditions are not met). The accounting treatment of non-market and market conditions are in accordance with accounting standards. 6. The value of accrued long service leave for FY22 less leave taken, which is depicted as cash salary. 7. Variable Incentive equity includes costs incurred in FY22 for the FY18, FY19, FY20, FY21 Variable Incentive equity grants. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 2022 8. Data disclosures – Executive KMP Remuneration of Executive KMP – Statutory Reporting SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS EQUITY-BASED BENEFITS 5 55 Current Executives NAME R Adams 2022 2021 A Gazal 2022 2021 C Green 2022 2021 D Lane 2022 2021 R McCarthy S Mosse M Smith 2022 2021 2022 2021 2022 2021 2022 2021 A Gillespie Total 2022 Total 2021 1,277,776 1,147,498 530,000 500,000 493,333 435,750 645,858 592,639 529,165 493,544 511,667 428,566 545,833 472,816 606,626 575,045 150,000 116,350 325,000 281,125 300,000 336,000 300,000 250,800 172,800 136,285 272,051 229,174 479,167 278,825 225,000 102,945 5,089,425 2,274,851 4,424,683 1,952,679 12,882 6,123 12,882 6,123 – – – – – – – – – – – – – – OTHER 4 $ 82,196 26,867 15,878 9,143 1,651 (12,352) 11,806 5,880 7,882 (2,349) – (23,269) 21,086 (17,784) 10,256 (10,824) 150,755 (24,688) CASH SALARY 1 $ VARIABLE INCENTIVE CASH 2 $ NON-MONETARY BENEFITS 3 $ SUPERANNUATION OTHER LONG-TERM BENEFITS 6 VARIABLE INCENTIVE EQUITY 7 $ $ $ 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 15,411 200,000 190,411 21,722 21,721 9,575 8,087 15,062 10,840 10,752 9,208 (11,179) (33,206) 10,573 10,418 10,531 10,531 10,465 8,544 77,501 46,143 645,029 417,525 69,329 25,660 237,644 270,691 192,581 171,161 173,222 119,882 101,601 56,241 207,922 212,860 82,362 22,704 1,709,690 1,296,724 SHARES $ 170,988 161,993 23,074 189,136 – – – – – – 20,607 75,835 – – – – 214,669 426,964 PERFORMANCE RIGHTS $ – – – – – – – – 11,664 54,657 – – – – 111,558 80,168 123,222 134,825 TERMINATION PAYMENTS $ TOTAL $ – – – – – – – – – – – – – – – – – – 2,752,711 2,300,654 786,189 809,126 1,250,215 1,167,943 1,082,186 1,046,916 1,018,256 843,350 876,414 753,326 1,143,216 1,034,826 943,808 497,773 9,852,995 8,453,914 1. Cash salary is the ordinary cash salary received in the year including payment for annual, long service, sick or other types of paid leave taken. 5. Share-based remuneration has been valued using the binomial method, which considers the performance hurdles relevant to each issue of equity 2. Variable Incentive cash payments consist of cash payments to be made in September 2022 for the CEO and Group Executives. 3. Non-monetary benefits represents those amounts salary sacrificed from fixed remuneration to pay for benefits such as leased motor vehicles, car parking, and purchased leave. 4. Other short-term benefits relate to: – salary continuance and death and total and permanent disability insurance provided as part of the remuneration package; and – the value of accrued annual leave for FY22 less leave taken which is depicted as cash salary. instruments. The value of each equity instrument has been provided by PricewaterhouseCoopers. Share-based remuneration is the amount expensed in the financial statements for the year and includes adjustments to reflect the most current expectation of vesting of LTI grants with non-market condition hurdles. For grants with non-market conditions including earnings per share hurdles, the number of shares expected to vest is estimated at the end of each reporting period and the amount to be expensed in the financial statements is adjusted accordingly. For grants with market conditions such as total shareholder return hurdles, the number of shares expected to vest is not adjusted during the life of the grant and no adjustment is made to the amount expensed in the financial statements (except if service conditions are not met). The accounting treatment of non-market and market conditions are in accordance with accounting standards. 6. The value of accrued long service leave for FY22 less leave taken, which is depicted as cash salary. 7. Variable Incentive equity includes costs incurred in FY22 for the FY18, FY19, FY20, FY21 Variable Incentive equity grants. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 56 Executive KMP Remuneration received FY22 The table below represents the actual remuneration received by the Executive KMP during FY22. This table differs to the statutory remuneration table on page 54 that has been prepared in accordance with the Corporations Act and Australian Accounting Standards. The difference between the two tables is predominantly due to the accounting treatment of the share-based payments. TOTAL FIXED REMUNERATION 1 $ VARIABLE INCENTIVE CASH 2 $ EQUITY VESTED DURING YEAR 3 $ DIVIDENDS PAID ON UNVESTED SHARES DURING YEAR 4 $ SIGN-ON AND RELOCATION BENEFITS $ PAYMENTS MADE ON TERMINATION $ 1,304,801 500,000 439,555 520,076 672,509 116,350 281,125 177,061 502,545 572,276 336,000 236,004 538,318 250,800 258,298 572,484 633,277 506,577 136,285 229,174 102,945 219,474 347,569 105,697 22,279 4,672 – – – 4,475 – – 5,320,318 1,952,679 2,286,203 31,426 – – – – – – – – – – – – – – – – – – TOTAL $ 2,266,634 818,160 1,456,179 1,144,280 1,047,416 932,718 1,210,020 715,219 9,590,626 NAME Current Executives R Adams A Gazal C Green D Lane R McCarthy S Mosse M Smith A Gillespie Totals 1. Fixed remuneration consists of cash salary, superannuation, packaged employee benefits and associated fringe benefits tax. 2. Represents the cash portion of Variable Incentive outcome for FY21 paid in September 2021. 3. Represents the value of equity grants awarded in previous years which vested during the year. For Ms Gazal, this relates to sign-on shares granted at the commencement of employment. For Mr McCarthy, this represents 3859 Share Rights granted on 1 October 2018 as a Long Term Incentive that vested on 1 October 2021, as well as 3663 Share Rights granted on 1 September 2019 that vested on 1 September 2021. For Mr Smith, Lane and Green the numbers reflect Share Rights granted to KMP in September 2019 which converted to Restricted Shares two years after the grant date. The holding lock is removed four years after the grant date, as per the terms of the Executive Leadership Team Variable Incentive Plan. 4. Dividends paid during FY22 on sign-on shares granted to Mr Adams on 24 September 2018, Ms Gazal on 7 April 2020 and Ms Mosse on 18 February 2019. Dividends paid to Mr McCarthy relate to deferred STI shares awarded in previous role. Remuneration components as a proportion of total remuneration The remuneration components below are determined based on the remuneration of the Executive KMP – Statutory Reporting table on page 54. This table includes fixed remuneration and Variable Incentives – cash and equity. NAME Current Executives R Adams A Gazal C Green D Lane R McCarthy S Mosse M Smith A Gillespie PERFORMANCE LINKED BENEFITS FIXED REMUNERATION % VARIABLE INCENTIVE CASH % VARIABLE INCENTIVE EQUITY % OTHER EQUITY 1 TOTAL % 51% 69% 55% 54% 52% 66% 58% 56% 19% 19% 26% 28% 29% 20% 24% 24% 23% 9% 19% 18% 18% 12% 18% 21% 6% 3% 0% 0% 0% 2% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 1. Other equity includes sign-on equity for Mr Adams, Ms Gazal and Ms Mosse. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202257 Value of unvested remuneration that may vest in future years Estimates of the maximum future cost of equity-based remuneration granted by Perpetual should all targets be met in the future. CEO and Managing Director R Adams Current Group Executives A Gazal A Gillespie C Green D Lane R McCarthy S Mosse M Smith 30/06/2023 1 MAXIMUM $ 30/06/2024 1 MAXIMUM $ 30/06/2025 1 MAXIMUM $ 30/06/2026 1 MAXIMUM $ 30/06/2027 1 MAXIMUM $ 937,521 780,587 238,914 64,502 7,200 102,175 97,884 201,596 150,088 316,131 268,880 278,813 235,101 247,121 225,205 148,815 283,113 133,562 253,538 30,974 40,389 82,049 70,205 65,982 38,873 75,562 8,798 12,332 21,218 18,133 17,531 10,163 19,916 990 1,485 2,344 1,980 1,980 1,141 2,211 1. The minimum value of the grants is $nil if the performance targets are not met. The values above are determined in accordance with accounting standards. The fair value of granted shares is recognised as an employee expense with a corresponding increase in equity. Fair value is measured at grant date and amortised over the performance and/or service period. Shareholdings The table below summarises the movement in holdings of ordinary shares held during the year and the balance at the end of the year, directly, indirectly, or by a related party. NAME TOTAL SHARES HELD AT 1 JULY 2021 Current Executives R Adams A Gazal C Green D Lane R McCarthy S Mosse M Smith A Gillespie 21,290 4,867 18,931 12,758 3,234 – 26,385 2,240 PURCHASES VESTING OF SHARES VESTING OF RIGHTS SALES/ REDUCTIONS SHARES HELD PERSONALLY AT 30 JUNE 2022 SHARES HELD NOMINALLY AT 30 JUNE 2022 1 TOTAL SHARES HELD AT 30 JUNE 2022 – – – – 7,905 – – 10,551 4,867 – – – 4,661 – – – 12,063 5,665 6,522 1,010 8,343 2,859 – – – – 7,905 – 30,034 9,734 30,994 18,423 9,756 5,671 18,131 5,099 1,807 – – – – – 16,597 – 31,841 9,734 30,994 18,423 9,756 5,671 34,728 5,099 1. Shares held nominally are included in the “Total shares held at 30 June 2022” column. Total shares are held directly by the KMP and indirectly by the KMP’s related parties, inclusive of domestic partner, dependents and entities controlled, jointly controlled or significantly influenced by the KMP. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report58 Unvested Share and Performance Rights holdings of the Executive KMP The table below summarises the Share and Performance Rights holdings and movements by number granted to the Executive KMP by Perpetual, for the year ended 30 June 2022. For details of the fair valuation methodology, refer to Section 4.1 of the notes to, and forming part of the financial statements. NAME Current Executives R Adams 2 A Gazal 2 INSTRUMENT GRANT DATE Shares 24 September 2018 Share Rights 2 September 2019 Performance Rights 2 September 2019 Performance Rights 2 September 2019 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 4 1 September 2021 Aggregate value Shares 7 April 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value GRANT PRICE $ 42.01 42.01 42.01 42.01 31.15 31.15 41.23 41.23 41.23 25.86 41.23 41.23 41.23 VESTING DATE NUMBER OF INSTRUMENTS HELD AT 1 JULY 2021 NUMBER OF INSTRUMENTS MOVEMENT DURING THE YEAR 1 GRANTED FORFEITED VESTED HELD AT 30 JUNE 2022 NUMBER OF INSTRUMENTS FAIR VALUE OF INSTRUMENT AT GRANT DATE $ 24 September 2022 1 September 2021 1 September 2022 1 September 2023 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 7 October 2021 1 September 2024 1 September 2025 1 September 2023 C Green Share Rights 3 2 September 2019 35.30 1 September 2021 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value 31.15 31.15 41.23 41.23 41.23 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 D Lane 2 Share Rights 3 2 September 2019 35.30 1 September 2021 R McCarthy 5 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value Share Rights 1 October 2018 Share Rights 3 2 September 2019 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value 31.15 31.15 41.23 41.23 41.23 34.97 35.30 31.15 31.15 41.23 41.23 41.23 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 1 October 2021 1 September 2021 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 10,711 10,551 5,276 5,275 21,938 21,937 4,867 12,063 8,026 8,025 5,665 6,019 6,019 2,859 3,663 6,019 6,019 – – – – – – – – – – – – – – – – 10,780 10,780 21,560 $1,777,838 1,410 1,410 2,821 $232,578 3,727 3,727 7,454 $614,657 3,357 3,357 6,714 2,754 2,754 5,509 – – – – – – $– – $– – – – $– – – – – – – – 10,551 – – – – – – – – – $439,555 4,867 $177,061 12,063 $502,545 5,665 2,859 3,663 – – 10,711 – 5,276 5,275 21,938 21,937 10,780 10,780 21,560 – 1,410 1,410 2,821 – 8,026 8,025 3,727 3,727 7,454 – 6,019 6,019 3,357 3,357 6,714 – – 6,019 6,019 2,754 2,754 5,509 $553,636 $– $236,004 $454,231 $– $258,298 42.01 28.89 8.22 8.40 12.09 12.42 20.14 17.05 34.07 25.86 20.14 17.05 34.07 28.89 12.09 12.42 20.14 17.05 34.07 28.89 12.09 12.42 20.14 17.05 34.07 34.97 28.89 12.09 12.42 20.14 17.05 34.07 Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 2022Unvested Share and Performance Rights holdings of the Executive KMP The table below summarises the Share and Performance Rights holdings and movements by number granted to the Executive KMP by Perpetual, for the year ended 30 June 2022. For details of the fair valuation methodology, refer to Section 4.1 of the notes to, and forming part of the financial statements. NAME Current Executives R Adams 2 INSTRUMENT GRANT DATE VESTING DATE Shares 24 September 2018 24 September 2022 Share Rights 2 September 2019 Performance Rights 2 September 2019 Performance Rights 2 September 2019 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 4 1 September 2021 Aggregate value Shares 7 April 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value Share Rights 1 October 2018 Share Rights 3 2 September 2019 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value GRANT PRICE $ 42.01 42.01 42.01 42.01 31.15 31.15 41.23 41.23 41.23 25.86 41.23 41.23 41.23 31.15 31.15 41.23 41.23 41.23 31.15 31.15 41.23 41.23 41.23 34.97 35.30 31.15 31.15 41.23 41.23 41.23 1 September 2021 1 September 2022 1 September 2023 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 7 October 2021 1 September 2024 1 September 2025 1 September 2023 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 1 October 2021 1 September 2021 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 C Green Share Rights 3 2 September 2019 35.30 1 September 2021 D Lane 2 Share Rights 3 2 September 2019 35.30 1 September 2021 A Gazal 2 R McCarthy 5 59 HELD AT 1 JULY 2021 NUMBER OF INSTRUMENTS MOVEMENT DURING THE YEAR 1 GRANTED FORFEITED VESTED NUMBER OF INSTRUMENTS HELD AT 30 JUNE 2022 NUMBER OF INSTRUMENTS FAIR VALUE OF INSTRUMENT AT GRANT DATE $ 10,711 10,551 5,276 5,275 21,938 21,937 4,867 12,063 8,026 8,025 5,665 6,019 6,019 2,859 3,663 6,019 6,019 – – – – – – $– – $– – – – $– – – – – 10,551 – – – – $439,555 4,867 $177,061 12,063 – – $502,545 5,665 – – – – – – – – 10,780 10,780 21,560 $1,777,838 1,410 1,410 2,821 $232,578 – – – 3,727 3,727 7,454 $614,657 – – – 3,357 3,357 6,714 $553,636 $– $236,004 – – – – 2,859 3,663 – – – – – – 2,754 2,754 5,509 $454,231 $– $258,298 10,711 – 5,276 5,275 21,938 21,937 10,780 10,780 21,560 – 1,410 1,410 2,821 – 8,026 8,025 3,727 3,727 7,454 – 6,019 6,019 3,357 3,357 6,714 – – 6,019 6,019 2,754 2,754 5,509 42.01 28.89 8.22 8.40 12.09 12.42 20.14 17.05 34.07 25.86 20.14 17.05 34.07 28.89 12.09 12.42 20.14 17.05 34.07 28.89 12.09 12.42 20.14 17.05 34.07 34.97 28.89 12.09 12.42 20.14 17.05 34.07 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report60 NAME S Mosse 2 INSTRUMENT GRANT DATE Shares 18 February 2019 Share Rights 3 2 September 2019 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value GRANT PRICE $ 35.37 35.30 31.15 31.15 41.23 41.23 41.23 VESTING DATE 21 September 2021 1 September 2021 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 M Smith Share Rights 3 2 September 2019 35.30 1 September 2021 A Gillespie 6 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value Share Rights 1 October 2018 Share Rights 1 October 2019 Share Rights 1 October 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value 31.15 31.15 41.23 41.23 41.23 34.97 31.53 23.82 41.23 41.23 41.23 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 1 October 2021 1 October 2022 1 October 2023 1 September 2024 1 September 2025 1 September 2023 1. Granted aggregate value is calculated by multiplying the number of instruments by the grant price. Vested and forfeited aggregate value is calculated by multiplying the number of shares by the Perpetual closing share price on the vesting date. 2. Mr Adams’ shares, Ms Gazal’s shares and Ms Mosse’s shares are sign-on shares. 3. Share Rights granted to KMP in September 2017, 2018 & 2019 convert to Restricted Shares two years after the grant date. The holding lock is removed four years after the grant date, as per the terms of the Executive Leadership Team Variable Incentive Plan. These Share Rights are not included in the Table after vesting. 4. Performance Rights granted to KMP in September 2020 were issued as two tranches with a TSR hurdle. T1 is subject to a three-year performance period before vesting into Restricted Shares for one year. T2 was subject to a four-year performance period before vesting. Vested Performance Rights with a holding lock are not included in the Table after vesting. 5. Some of Mr McCarthy’s shares and Performance Rights were granted prior to his KMP appointment date of 15 October 2018. We have included his holdings and movements prior to 15 October 2018 for completeness. 6. All of Ms Gillespie’s Share Rights were granted prior to her KMP appointment date of 18 November 2020. We have included these holdings for completeness. 7. Performance Rights granted to KMP in September 2021 were issued as two tranches with a TSR hurdle. T1 is subject to a three-year performance period before vesting into Restricted Shares for one year. T2 was subject to a four-year performance period before vesting. Vested Performance Rights with a holding lock are not included in the Table after vesting. 8. Share Rights granted to KMP in September 2021 convert to Restricted Shares two years after the grant date. The holding lock is removed four years after the grant date, as per the terms of the Executive Leadership Team Variable Incentive Plan. These Share Rights are not included in the Table after vesting. HELD AT 1 JULY 2021 NUMBER OF INSTRUMENTS 4,661 1,010 4,012 4,012 8,343 6,019 6,019 2,859 4,123 6,298 – – – – – – – – – – 1,652 1,652 3,305 $272,489 3,421 3,421 6,842 $564,191 1,248 1,248 2,496 MOVEMENT DURING THE YEAR 1 GRANTED FORFEITED VESTED NUMBER OF INSTRUMENTS HELD AT 30 JUNE 2022 NUMBER OF INSTRUMENTS FAIR VALUE OF INSTRUMENT AT GRANT DATE – – – – $– – – – $– – – – 4,661 1,010 – – $219,474 8,343 – – – – $347,569 2,859 – – 4,012 4,012 1,652 1,652 3,305 – 6,019 6,019 3,421 3,421 6,842 – 4,123 6,298 1,248 1,248 2,496 $ 35.37 28.89 12.09 12.42 20.14 17.05 34.07 28.89 12.09 12.42 20.14 17.05 34.07 34.97 31.53 23.82 20.14 17.05 34.07 $205,820 $– $105,697 Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 2022 61 NAME S Mosse 2 INSTRUMENT GRANT DATE VESTING DATE Shares 18 February 2019 21 September 2021 Share Rights 3 2 September 2019 Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value Performance Rights 4 1 September 2020 Performance Rights 4 1 September 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value Share Rights 1 October 2018 Share Rights 1 October 2019 Share Rights 1 October 2020 Performance Rights 7 1 September 2021 Performance Rights 7 1 September 2021 Share Rights 8 1 September 2021 Aggregate value GRANT PRICE $ 35.37 35.30 31.15 31.15 41.23 41.23 41.23 31.15 31.15 41.23 41.23 41.23 34.97 31.53 23.82 41.23 41.23 41.23 1 September 2021 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 1 September 2023 1 September 2024 1 September 2024 1 September 2025 1 September 2023 1 October 2021 1 October 2022 1 October 2023 1 September 2024 1 September 2025 1 September 2023 HELD AT 1 JULY 2021 NUMBER OF INSTRUMENTS 4,661 1,010 4,012 4,012 8,343 6,019 6,019 2,859 4,123 6,298 MOVEMENT DURING THE YEAR 1 GRANTED FORFEITED VESTED NUMBER OF INSTRUMENTS HELD AT 30 JUNE 2022 NUMBER OF INSTRUMENTS FAIR VALUE OF INSTRUMENT AT GRANT DATE $ – – – – 1,652 1,652 3,305 $272,489 – – – 3,421 3,421 6,842 $564,191 – – – 1,248 1,248 2,496 – – – – $– – – – $– – – – 4,661 1,010 – – $219,474 8,343 – – $347,569 2,859 – – – – 4,012 4,012 1,652 1,652 3,305 – 6,019 6,019 3,421 3,421 6,842 – 4,123 6,298 1,248 1,248 2,496 $205,820 $– $105,697 35.37 28.89 12.09 12.42 20.14 17.05 34.07 28.89 12.09 12.42 20.14 17.05 34.07 34.97 31.53 23.82 20.14 17.05 34.07 M Smith Share Rights 3 2 September 2019 35.30 1 September 2021 A Gillespie 6 1. Granted aggregate value is calculated by multiplying the number of instruments by the grant price. Vested and forfeited aggregate value is calculated by multiplying the number of shares by the Perpetual closing share price on the vesting date. 2. Mr Adams’ shares, Ms Gazal’s shares and Ms Mosse’s shares are sign-on shares. 3. Share Rights granted to KMP in September 2017, 2018 & 2019 convert to Restricted Shares two years after the grant date. The holding lock is removed four years after the grant date, as per the terms of the Executive Leadership Team Variable Incentive Plan. These Share Rights are not included in the Table after vesting. 4. Performance Rights granted to KMP in September 2020 were issued as two tranches with a TSR hurdle. T1 is subject to a three-year performance period before vesting into Restricted Shares for one year. T2 was subject to a four-year performance period before vesting. Vested Performance Rights with a holding 5. Some of Mr McCarthy’s shares and Performance Rights were granted prior to his KMP appointment date of 15 October 2018. We have included his holdings lock are not included in the Table after vesting. and movements prior to 15 October 2018 for completeness. 6. All of Ms Gillespie’s Share Rights were granted prior to her KMP appointment date of 18 November 2020. We have included these holdings for completeness. 7. Performance Rights granted to KMP in September 2021 were issued as two tranches with a TSR hurdle. T1 is subject to a three-year performance period before vesting into Restricted Shares for one year. T2 was subject to a four-year performance period before vesting. Vested Performance Rights with a holding lock are not included in the Table after vesting. 8. Share Rights granted to KMP in September 2021 convert to Restricted Shares two years after the grant date. The holding lock is removed four years after the grant date, as per the terms of the Executive Leadership Team Variable Incentive Plan. These Share Rights are not included in the Table after vesting. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 62 Termination terms for Executive KMP Following are the Executive KMP contractual arrangements. TERM Duration of contract WHO CONDITIONS All Executive KMP Ongoing until notice is given by either party Notice to be provided by the Executive to terminate the employment agreement CEO and Managing Director Other Executive KMP Notice to be provided by Perpetual to terminate the employment agreement without cause CEO and Managing Director Other Executive KMP Notice to be provided by Perpetual for summary dismissal Post-employment restraint All Executive KMP 9 months 6 months 9 months 6 months No notice CEO and Managing Director and Other Executive KMP 12 months from the date on which notice of termination was given The agreements also allow Perpetual to make a payment in lieu of notice, subject to Board approval. 9. Non-executive Director remuneration 9.1 Remuneration policy and data Perpetual’s Remuneration Policy for Non-executive Directors aims to ensure that we attract and retain suitably skilled, experienced and committed individuals to serve on your Board. Non-executive Directors do not receive performance-related remuneration and are not entitled to receive performance shares or options over Perpetual shares as part of their remuneration arrangements. Fee framework Non-executive Directors receive a base fee. Except for the Chairman, they also receive fees for participating in Board Committees (other than the Nominations Committee), either as Chairman or as a member 1. As advised in the FY21 Remuneration Report, NED fees were adjusted with an effective date of 1 July 2021. This was the first change to base Chairman and Director fees (other than the temporary reduction in FY21) since an adjustment made leading into FY16. NON-EXECUTIVE DIRECTORS’ FEES Chairman Directors Audit, Risk and Compliance Committee Chairman Audit, Risk and Compliance Committee member People and Remuneration Committee Chairman People and Remuneration Committee member Investment Committee Chairman Investment Committee member Nominations Committee member FY21 AUD FY22 AUD FY22 USD 1 300,000 340,000 FY23 AUD 340,000 FY23 USD 1 150,000 165,000 180,000 165,000 180,000 35,000 17,000 35,000 17,000 25,000 13,000 Nil 35,000 17,000 35,000 17,000 25,000 13,000 Nil 17,000 17,000 13,000 Nil 35,000 17,000 35,000 17,000 25,000 13,000 Nil 17,000 17,000 13,000 Nil Overseas travel allowance per trip (long-haul) 2 10,000 10,000 10,000 10,000 1. Apply to US-based Directors only. 2. This allowance is paid once for each return overseas trip where the flight time, one way, is at least eight hours. The fees detailed above are inclusive of any superannuation or pension contributions, capped at the maximum prescribed under any applicable legislation. 1. Any other contracts are at arm’s length in the normal course of business and on normal commercial terms consistent with other employees and clients. Those transactions may involve investments in Perpetual managed funds and financial advice by Perpetual Private. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 202263 Australian-based Non-executive Directors may receive employer superannuation contributions in one of Perpetual’s employee superannuation funds or in a complying fund of their choice. Non-executive Directors can also salary sacrifice superannuation contributions out of their base fee. Total fees paid to Non-executive Directors in FY22 were $1,724,665. More details are provided in the table below. Retirement policy Non-executive Directors who have held office for three years since their last appointment must retire and seek re-election at the Annual General Meeting. In order to revitalise the Board, Perpetual’s Non-executive Directors agree not to seek re-election after three terms of three years. However, the Board may invite a Non-executive Director to continue in office beyond nine years if there is a compelling reason and, as determined by the Board, if in the best interests of shareholders. Outside of superannuation contributions, no retirement benefits are paid to Non-executive Directors. Remuneration of the Non-executive Directors (statutory reporting) Details of Non-executive Director remuneration are set out in the table below. NAME T D'Aloisio 2022 2021 G Cooper 2022 2021 N Fox 2022 2021 I Hammond 2022 2021 M A Kanaan 4 2022 2021 F Trafford-Walker 2022 2021 C Ueland 2022 2021 Total 2022 Total 2021 SHORT-TERM BENEFITS POST EMPLOYMENT BENEFITS PERPETUAL BOARD FEES 1 $ SUPERANNUATION 2 $ TOTAL 3 $ 326,432 248,742 201,818 180,235 206,364 177,626 213,318 189,000 280,665 2,000 205,000 163,973 198,182 165,068 1,631,779 1,126,644 23,568 21,258 20,182 7,765 20,636 16,874 9,682 – – – – 7,027 18,818 15,682 92,886 68,606 350,000 270,000 222,000 188,000 227,000 194,500 223,000 189,000 280,665 2,000 205,000 171,000 217,000 180,750 1,724,665 1,195,250 1. All Australian Non-executive Directors travelled to the US during FY22 once. Their fees therefore include the $10,000 overseas travel allowance detailed in the NED fees table. 2. Australian Non-executive Directors can elect to take superannuation contributions in excess of their Superannuation Guarantee Contribution as additional base fees. 3. Non-executive Directors do not receive any non-cash benefits as part of their remuneration. 4. US-based Directors do not receive any payments such as pension contributions in addition to Board fees. US fees are shown as the actual AUD cost of USD payments. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report64 Alignment with shareholder interests The constitution requires Non-executive Directors to acquire a minimum of 500 Perpetual shares on appointment and hold a total of at least 1,000 shares when they have held office for three years. However, Non-executive Directors are encouraged to hold ordinary Perpetual shares equivalent in value to 100% of their annual base fee within a reasonable period of their appointment. Non-executive Directors do not receive share rights or options and are required to comply with Perpetual’s Hedging and Share Trading policies. Non-executive Director shareholdings The table below summarises the Non-executive Director movement in holdings of ordinary shares held during the year and the balance at the end of the year. The table includes shares held both in total (directly or indirectly) and held by related parties. TOTAL SHARES HELD AT 1 JULY 2021 NAME T D'Aloisio G Cooper N Fox I Hammond M Kanaan 2 F Trafford-Walker C Ueland NUMBER OF SHARES PURCHASES SALES/ REDUCTIONS SHARES HELD PERSONALLY AT 30 JUNE 2022 SHARES HELD NOMINALLY AT 30 JUNE 2022 1 TOTAL SHARES HELD AT 30 JUNE 2022 9,072 5,758 5,641 12,967 – 1,803 7,991 324 317 500 102 – – – – – – – – – 5,958 2,149 500 1,905 3,995 9,072 6,082 – 10,818 – – 3,996 9,072 6,082 5,958 12,967 500 1,905 7,991 1,000 SHAREHOLDING REQUIREMENT MET ✔ ✔ ✔ ✔ * ✔ ✔ 1. Shares held nominally are included in the ‘Total shares held at 30 June 2022’ column. Total shares are held directly by the KMP and indirectly by the KMP’s related parties, inclusive of domestic partner, dependents and entities controlled, jointly controlled or significantly influenced by the KMP. 2. Ms Kanaan joined the Board on 28 June 2021. The constitution requires Non-executive Directors to acquire a minimum of 500 Perpetual shares on appointment and hold a total of at least 1,000 shares when they have held office for three years. Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 2022Directors’ Report for the year ended 30 June 2021 65 10. Key terms Balanced scorecard Cash Executive KMP The performance measures of financial, client, growth and people as agreed by the Board to assess short and long-term Perpetual Group performance for the purposes of determining the amount of variable remuneration payable (if any). Refers to the Cash component of the Variable Incentive Plan. The Cash component of the plan is delivered to KMP following the completion of the performance year. Executive Key Management Personnel. Those people who have the authority and responsibility for planning, directing and controlling Perpetual’s activities, either directly or indirectly. Key Management Personnel disclosed in this report are the CEO and Managing Director and other Executive KMP (collectively Executive KMP). Fixed remuneration Fixed remuneration consists of cash salary, superannuation, packaged employee benefits and associated fringe benefits tax. Group Perpetual Limited and its controlled entities. Hurdled Equity Market peers Mood Monitor The Hurdled Equity component is awarded in the form of Performance Rights (subject to performance hurdles of absolute total shareholder return) equally over three years (with any vested equity restricted for a further year) and four years. For the purposes of benchmarking remuneration practices and levels, Perpetual’s market peers refer to listed companies in the diversified financial services industry, excluding major banks and other financial services companies in the Standard & Poor’s (S&P)/ASX 200. With the decision not to run a formal engagement survey in FY20, it was decided to implement the Mood Monitor to seek more frequent, in-the-moment feedback to gauge the mood of employees through regular pulse surveys. Non-Executive Director (NED) Non-Executive Directors (NEDs) or Non-Executive KMP are members of a company's board of directors who are not part of the executive team. NPAT NPAT is the net profit after tax in accordance with the Australian Accounting Standards. Performance Rights Performance Rights are granted under the Hurdled Equity component of the Executive Variable Incentive Plan. Restricted Shares Once Share Rights are held for a two-year vesting period, and if the vesting conditions are met, they are converted to Restricted Shares on a one share for one Share Right basis. Restricted shares are then held for a further two years. Share Rights STI Share Rights are issued around September each year, following the performance period. Share Rights have a two-year vesting period, at which point, if the vesting conditions are met, they are converted to Restricted Shares on a one share for one Share Right basis. A short-term incentive paid to employees for meeting annual targets aimed at delivering our longer-term strategic plan. Under the STI Plan, employees may be paid a discretionary incentive (less applicable taxes) based on their individual performance as well as business performance. The CEO and Executive KMP participate in their own Variable Incentive plans, and therefore no longer participate in the Group STI plan. Unhurdled Equity The Unhurdled Equity component is awarded as Share Rights, which vest after two years into Restricted Shares for a further two years. UPAT UPAT is underlying net profit after tax in accordance with the Australian Accounting Standards. Variable Incentive Variable Incentive includes both cash and equity components of the CEO and other Executive KMP Variable Incentive Plan. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report66 Non-audit services provided by the External Auditor Fees for non-audit services paid to KPMG in the current year were $189,313 (2021: $74,877). The Board has a review process in relation to any non-audit services provided by the external auditor. The Board considered the non-audit services provided by the auditor and is satisfied that the provision of these non-audit services by the auditor is compatible with, and does not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services are subject to the corporate governance procedures adopted by the Company and are reviewed by the Audit, Risk and Compliance Committee to ensure that they do not impact the integrity and objectivity of the auditor; and – non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. The Lead Auditor’s independence declaration for the 30 June 2022 financial year is included at the end of this report. Rounding off The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 dated 1 April 2016 and, in accordance with that Instrument, amounts in the financial report and the Directors’ Report have been rounded off to the nearest one hundred thousand dollars, unless otherwise stated. This report is made in accordance with a resolution of the Directors. Tony D’Aloisio Chairman Sydney 25 August 2022 Rob Adams Chief Executive Officer and Managing Director Directors’ ReportRemuneration Report for the year ended 30 June 2022Perpetual Annual Report 2022 Lead Auditor’s Independence Declaration under section 307C of the Corporations Act 2001 67 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Perpetual Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Perpetual Limited for the financial year ended 30 June 2022, there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Brendan Twining Partner Sydney 25 August 2022 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 52 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 68 Operating and Financial Review for the 12 months ended 30 June 2022 Disclaimer The following information should be read in conjunction with the Group’s audited consolidated financial statements and associated notes for the 12 months ended 30 June 2022 contained in the Annual Report for the financial year ended 30 June 2022 (FY22). The Group’s audited consolidated financial statements for the 12 months ended 30 June 2022 were subject to an independent audit by KPMG. No representation or warranty is made as to the accuracy, adequacy or reliability of any statements, estimates, opinions or other information contained in this review (any of which may change without notice). To the maximum extent permitted by law, the Perpetual Group, its Directors, officers, employees, agents and contractors and any other person disclaim all liability and responsibility (including without limitation any liability arising from fault or negligence) for any direct or indirect loss or damage which may be suffered through use of or reliance on anything contained in or omitted from this review. This review contains forward-looking statements. These forward-looking statements should not be relied upon as a representation or warranty, express or implied, as to future matters. Prospective financial information has been based on current expectations about future events but is, however, subject to risks, uncertainties, contingencies, and assumptions that could cause actual results to differ materially from the expectations described in such prospective financial information. The Perpetual Group undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this review, subject to disclosure requirements applicable to the Group. Contents Review of Group 1 About Perpetual 1.1 Overview 1.2 Group Financial Performance 1.3 Group Financial Position 1.4 Regulatory Developments and Business Risks 1.5 Outlook Review of Businesses 2 Review of Businesses 2.1 Perpetual Asset Management International 2.2 Perpetual Asset Management Australia 2.3 Perpetual Private 2.4 Perpetual Corporate Trust 2.5 Perpetual Group Support Services Appendices 3 Appendices 3.1 Appendix A: Segment Results 3.2 Appendix B: Bridge For FY22 Statutory Accounts and OFR 3.3 Appendix C: Perpetual Average Assets Under Management 3.4 Appendix D: Full Time Equivalent Employees 3.5 Appendix E: Dividend History 3.6 Glossary Notes Note that in this review: 69 69 71 74 77 82 83 83 86 89 91 93 94 94 98 100 101 101 102 – FY22 refers to the financial reporting period for the 12 months ended 30 June 2022 – 1H22 refers to the financial reporting period for the 6 months ended 31 December 2021 – 2H22 refers to the financial reporting period for the 6 months ended 30 June 2022 with similar abbreviations for previous and subsequent periods. This is a review of Perpetual’s operations for the 12 months ended 30 June 2022 (FY22). It also includes a review of its financial position as at 30 June 2022. The following information should be read in conjunction with the Group’s audited consolidated financial statements and associated notes for FY22. All amounts shown are stated in Australian dollars unless otherwise noted and are subject to rounding. Additional information is available on the Group’s website perpetual.com.au. A glossary of frequently used terms and abbreviations can be found at the end of the review. Perpetual Annual Report 202269 Review of Group 1. About Perpetual 1.1 Overview Perpetual Limited (Perpetual) is a global financial services firm operating in asset management, financial advisory and trustee services. Perpetual services a global client base from its offices in Australia as well as its international offices in the United States, United Kingdom, the Netherlands, Singapore and Hong Kong. Perpetual earns the majority of its revenue from fees charged on assets under either management, advice or administration. Revenue is influenced by movement in the underlying asset values, margin on assets and net client flows. The business model provides Perpetual with recurring revenue streams and leverage to movement in asset values. As a provider of high-quality financial services, employment costs comprise the largest component of the Group’s expenses. 1.1.1 Strategy Perpetual’s vision is to be the ‘most trusted in financial services’ 1. Perpetual’s strategy is focused on delivering sustained growth and seeks to build on the foundation of three core businesses, forming a scalable business model supported by shared central services and a strong brand. In pursuing its growth strategy, the Group is committed to the following strategic imperatives: – Client first – delivering exceptional products and outstanding service; – Future fit – a scalable business platform that empowers our people to deliver high performance; and – New horizons – adding new capabilities and building a global footprint. Perpetual’s unique combination of market-leading businesses provides the group with a broad array of growth opportunities. Perpetual Asset Management’s vision is to create a market-leading global business of high-quality asset management capabilities delivered by the two operating segments of Perpetual Asset Management International (PAMI) and Perpetual Asset Management Australia (PAMA). Perpetual Asset Management provides a foundation for sustained quality growth by offering world-class investment capabilities, expanding its global distribution footprint and investment in a contemporary and scalable global business. Perpetual Private’s vision is to empower families, businesses and communities to achieve their aspirations by delivering advisory service excellence. With a client-centred fiduciary heritage, Perpetual Private reaches into segments where client goals are aligned to a ‘protect first’ and then ‘grow’ investment philosophy. Perpetual Corporate Trust’s vision is to be the most trusted fiduciary and the leading digital solutions provider to the banking and financial services industry, with a mission to support the delivery of its client’s strategy through the provision of service excellence and digital solutions. Perpetual Corporate Trust builds on its strategy of enabling client success by leveraging its long-standing relationships and supporting its clients with innovative and automated digital solutions to help them meet business challenges today and into the future. 1. Measured as part of an annual brand strengths survey with the Perpetual Private target market and the Perpetual Asset Management Australia retail target market. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report70 1.1.2 Operating segments and principal activities Perpetual Asset Management International provides investment products and services to global retail and institutional clients, including a distribution presence in the United States, United Kingdom, the Netherlands and Hong Kong. Investment management firm, Barrow Hanley Global Investors (Barrow Hanley), and boutique ESG investment management firm, Trillium Asset Management (Trillium), form part of this operating segment to offer a breadth of high-quality global investment capabilities to our clients. Perpetual Asset Management Australia provides investment products and services to Australian and New Zealand retail, corporate, superannuation and institutional clients, with investment capabilities spanning Australian equities, credit and fixed income, multi-asset and global equities. Perpetual Private is an advisory services business focused on the comprehensive needs of families, businesses and communities. Support for clients spreads across financial advice, risk, estate administration, trustee services and tax and accounting as well as portfolio management. The business is focused on client service excellence and attracting and retaining exceptional talent to meet those standards in our chosen segments. Perpetual Corporate Trust provides a broad range of fiduciary, agency and digital products to the debt capital markets and managed funds industries both domestically and internationally. Debt Market Services includes trustee, document custodian, agency, trust management, accounting, standby servicing and reporting solutions. Perpetual Digital provides data services, industry roundtables, and our new Perpetual Intelligence platform-as-a-service products supporting the banking and financial services industry. Managed Funds Services provides services including independent responsible entity, wholesale trustee, custodian, investment management and accounting. The business units are supported by Group Support Services comprising Group Investments, CEO, Finance, Corporate Affairs, Marketing, Legal, Audit, Risk, Compliance, Company Secretary, Technology, Project & Change Management, Operations, Product and People & Culture. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202271 1.2 Group Financial Performance Profitability and key performance indicators FOR THE PERIOD Operating revenue Total expenses Underlying profit before tax (UPBT) Tax expense Underlying profit after tax (UPAT) 1 Significant items 3 Net profit after tax (NPAT) FY22 $M 767.7 (566.5) 201.2 (53.0) 148.2 (47.0) 101.2 FY21 2 $M 640.6 (471.2) 169.3 (46.6) 122.8 (49.9) 72.9 FY22 V FY21 FY22 V FY21 127.1 (95.3) 31.9 (6.5) 25.4 2.9 28.3 20% (20%) 19% (14%) 21% 6% 39% 1. Underlying profit after tax (UPAT) attributable to equity holders of Perpetual Limited reflects an assessment of the result for the ongoing business of the Group as determined by the Board and management. UPAT has been calculated in accordance with ASIC’s Regulatory Guide 230 – Disclosing non-IFRS financial information. Refer to Appendix B for a reconciliation of the adjustments between Statutory Accounts and the OFR. UPAT attributable to equity holders of Perpetual Limited is disclosed as it is useful for investors to gain a better understanding of Perpetual’s financial results from normal operating activities. 2. Prior periods comparative has been restated due to a change in accounting policy on the treatment of Software-as-a-service (SaaS) costs. Refer to Section 6-4 in the Financial Statements. 3. Significant items include (refer to Appendix A and Appendix B for further details): PROFIT/(LOSS) AFTER TAX FOR THE PERIOD Transaction and Integration costs – Trillium – Barrow Hanley – Other Non-cash amortisation of acquired intangibles Unrealised gains/losses on financial assets Accrued incentive compensation liability Total significant items FY21 $M FY22 V FY21 FY22 $M (22.2) (3.0) (16.8) (2.4) (32.8) (2.9) (28.8) (1.1) (18.6) (13.6) 2H22 $M (5.7) (1.7) (2.5) (1.6) (9.0) 10.6 (0.1) 12.0 (1.3) (5.0) (10.9) 6.7 (17.6) (10.2) 4.7 (47.0) (10.2) (49.9) 14.9 2.9 (2.3) (27.3) 1H22 $M (16.5) (1.4) (14.4) (0.8) (9.5) (0.7) 7.0 (19.8) 2H21 $M (11.9) (1.5) (9.6) (0.8) (9.1) 3.3 (8.8) (26.5) 1H21 $M (20.9) (1.4) (19.2) (0.2) (4.5) 3.5 (1.5) (23.4) Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report72 KEY PERFORMANCE INDICATORS (KPI) Profitability UPBT margin on revenue (%) Shareholder returns Diluted earnings per share (EPS) 1 on NPAT (cps) Diluted earnings per share (EPS) 1 on UPAT (cps) Dividends (cps) Franking rate (%) Dividend payout ratio 2 (%) Return on Equity (ROE) 3 on NPAT (%) Return on Equity (ROE) 3 on UPAT (%) Growth Perpetual average assets under management (AUM) $B 4 Average funds under advice (FUA) $B Closing Debt Markets Services FUA $B Closing Managed Funds Services FUA $B FY22 FY21 5 FY22 V FY21 FY22 V FY21 26 26 (0) 176.5 258.4 209.0 100 80 11.0 16.2 107.2 18.3 682.2 410.1 129.6 218.4 180.0 100 83 9.3 15.7 75.8 15.4 582.9 339.9 46.9 40.1 29.0 – (3) 1.7 0.4 31.4 2.9 99.3 70.2 36% 18% 16% 41% 19% 17% 21% 1. Diluted EPS is calculated using the weighted average number of ordinary shares and potential ordinary shares on issue of 57,346,980 for FY22 (FY21: 56,226,656). 2. Dividends paid/payable as a proportion of UPAT on ordinary fully paid shares at the end of each reporting period. 3. The return on equity (ROE) quoted in the above table is an annualised rate of return based on actual results for each period. ROE is calculated using the UPAT or NPAT attributable to equity holders of Perpetual Limited for the period, divided by average equity attributable to equity holders of Perpetual Limited, multiplied by the number of such periods in a calendar year in order to arrive at an annualised ROE. 4. Refer to Appendix C for a breakdown by operating segment. 5. Prior periods comparative has been restated due to a change in accounting policy on the treatment of Software-as-a-service (SaaS) costs. Refer to Section 6-4 in the Financial Statements. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202273 1.2.1 Financial performance For the 12 months to 30 June 2022, Perpetual’s UPAT was $148.2 million and NPAT was $101.2 million. FY22 UPAT was 21% higher than FY21 driven by earnings growth across all four operating segments: – Perpetual Asset Management International largely due to the acquisition of Barrow Hanley (completed on 17 November 2020), higher average AUM for the period due to higher average equity markets and investment performance, partially offset by the build-out of global distribution infrastructure and capability – Improved performance across Perpetual Asset Management Australia asset classes with increased average AUM due to higher average equity markets and investment performance – Positive momentum in Perpetual Private driven by market-related revenue, continued positive net flows (supported by growth initiatives and acquisition of Jacaranda in 1H22) and strong performance of the portfolio – Strong growth in Perpetual Corporate Trust across all of its service lines, along with the establishment of Perpetual Digital following the acquisition of Laminar Capital in 1H22. FY22 NPAT was 39% higher than FY21, due to significant increase in UPAT as mentioned above and slightly lower significant items (refer to Appendix A and Appendix B). The key drivers of revenue and expenses at Group level are summarised below. Analysis of performance for each of Perpetual’s operating segments is provided in Section 2. 1.2.2 Revenue The main driver of revenue in Perpetual Asset Management International and Perpetual Asset Management Australia is the value of assets under management (AUM), which is primarily influenced by the level of the US, Global and Australian equity markets. Perpetual Private’s main driver of revenue is funds under advice (FUA) and for Perpetual Corporate Trust it is funds under administration (FUA). Revenue is sensitive to a number of factors, including but not limited to: the performance of funds under the Group’s management and advice; the exposure to currency volatility; the impact and timing of flows on AUM and FUA2 – inflows, outflows and distributions; and changes in pricing policy, channel and product mix. In FY22, Perpetual generated $767.7 million of total operating revenue, which was $127.1 million or 20% higher than FY21. Revenue growth was primarily driven by higher average AUM due to higher equity markets, 12 months contribution of Barrow Hanley in Perpetual Asset Management International and continued growth (organic and inorganic) in Perpetual Corporate Trust and Perpetual Private. This was partially offset by the impact of net outflows within Perpetual Asset Management International. Performance fees earned in FY22 were $17.4 million, $3.3 million lower than FY21 1. 1.2.3 Expenses Total expenses in FY22 were $566.5 million, $95.3 million or 20% higher than FY21, impacted by: – The operating expenses of the acquisitions of Barrow Hanley, Jacaranda Financial Planning and Laminar Capital, as well as expenses related to the distributions on employee owned units in Barrow Hanley – Higher variable remuneration driven by group-wide short-term incentive schemes – Continued investment into technology and headcount to support business growth. 1.2.4 Shareholder returns and dividends The Board announced a final fully franked ordinary dividend for FY22 of 97 cents per share to be paid on 30th September 2022. This represents a payout ratio of 80% for the 12 months ended 30 June 2022. This is in line with Perpetual’s dividend policy to pay dividends within a range of 60% to 90% of UPAT on an annualised basis and maximising returns to shareholders. The Dividend Reinvestment Plan (DRP) will be operational for the final dividend. No discount will apply and the DRP will be met by issuing new shares. Perpetual’s return on equity (ROE) on NPAT was 11.0% for the period compared with 9.3% in FY21. Perpetual’s return on equity (ROE) on UPAT was 16.2% for the period compared with 15.7% in FY21. 1. Includes performance fees earned by Perpetual Asset Management International, Perpetual Asset Management Australia and Perpetual Private. 2. FUA refers to both funds under advice in Perpetual Private and funds under administration in Perpetual Corporate Trust. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report74 1.3 Group Financial Position BALANCE SHEET AS AT Assets Cash and cash equivalents Receivables Structured products – EMCF assets Liquid investments Goodwill and other intangibles Tax assets Property, plant and equipment Other assets Total assets Liabilities Payables Structured products – EMCF liabilities Tax liabilities Employee benefits Lease liabilities Provisions Borrowings Accrued incentive compensation Other liabilities Total liabilities Net assets Shareholder funds Contributed equity Reserves Retained earnings Total equity 2H22 $M 175.4 122.9 186.3 152.0 951.7 57.2 77.8 23.2 1H22 $M 2H21 1 $M 1H21 1 $M 130.9 144.5 189.2 154.8 929.2 48.9 84.8 23.2 147.1 132.7 163.9 150.4 862.9 47.2 91.1 21.6 172.1 117.5 216.2 133.7 863.5 35.5 98.6 21.4 1,746.5 1,705.5 1,616.8 1,658.5 93.8 187.7 14.9 119.4 72.3 10.5 258.4 48.6 15.2 820.7 925.8 817.7 34.3 73.8 925.8 90.0 189.2 19.2 90.2 78.3 10.0 248.1 45.6 15.6 786.2 919.3 815.6 8.8 94.9 919.3 90.7 163.3 23.2 117.6 83.2 6.4 166.0 48.0 11.3 709.8 907.1 815.3 2.5 89.3 907.1 75.9 215.7 16.4 79.0 89.9 7.5 219.4 41.4 12.0 757.1 901.4 820.8 (10.9) 91.5 901.4 1. Prior periods comparative has been restated due to a change in accounting policy on the treatment of Software-as-a-service (SaaS) costs. Refer to Section 6-4 in the Financial Statements. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202275 1H21 5 $M 224.6 20.0% 30x 0.42 1H215 $M 20.6 (469.6) 463.3 FY22 $M 260.8 22.0% 34x (1.14) FY22 $M 170.9 (69.3) (66.6) FY21 5 $M 170.3 15.9% 21x 0.22 FY215 $M 120.6 (479.0) 344.3 2H22 $M 260.8 22.0% 34x (1.14) 2H22 $M 135.5 (20.8) (68.7) 1H22 $M 251.4 21.5% 23x (0.52) 1H22 $M 35.4 (48.5) 2.1 2H21 5 $M 170.3 15.9% 21x 0.22 2H215 $M 100.0 (9.4) (119.0) (6.7) (3.0) (1.5) (5.2) 3.3 (6.3) 28.3 (17.1) 44.5 (16.2) (25.1) 8.0 DEBT METRICS Corporate debt $M 1 Corporate debt to capital ratio% 2 Interest coverage calculation for continuing operations (times) 3 NTA per share ($) 4 CASH FLOW FOR THE PERIOD Net cash from operating activities Net cash used in investing activities Net cash from/(used in) financing activities Effective movements in exchange rates on cash held Net (decrease)/increase in cash and cash equivalents 1. Corporate Debt represents the gross corporate debt excluding the offset of capitalised debt costs. 2. Corporate debt / (corporate debt + equity). 3. EBIT/gross interest expense in accordance with banking covenants. 4. Calculation includes lease assets and liabilities. 5. Prior periods comparative has been restated due to a change in accounting policy on the treatment of Software-as-a-service (SaaS) costs. Refer to Section 6-4 in the Financial Statements. 1.3.1 Balance sheet analysis Key movements in Perpetual’s consolidated balance sheet are described below. Structured products – EMCF assets increased by $22.4 million due to a net increase in units on issue. Goodwill and other intangibles increased by $88.8 million primarily due to the acquisition of Laminar Capital and Jacaranda Financial Planning during the year and foreign currency movements. Structured products – EMCF liabilities increased by $24.4 million broadly in line with the increase in the units on issue. Borrowings increased by $92.4 million primarily due to the drawdown of $75.0 million in debt to fund various strategic initiatives during the year and foreign currency movements. Reduction in NTA is driven by the increase in intangible assets due to acquisition activity. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report76 1.3.2 Capital management Perpetual’s principles for its capital management are as follows: – maximising returns to shareholders; – enabling the Group’s strategy; – ensuring compliance with the Group’s risk appetite statement and regulatory requirements; and – withstanding shocks to the market. Perpetual maintains a conservative balance sheet with low gearing levels. As part of its capital management strategy, the Group continually reviews options to ensure that it is optimising its use of capital and maximising returns to shareholders. The Group uses a risk-based capital model to assess its capital requirements. The model requires capital to be set aside for operational, credit and market risk and any known capital commitments. At the end of FY22, total base capital requirements were $41 million compared to $314 million of available liquid funds. During FY22, the Group has maintained its balance sheet strength through: – continuing to maintain the overall credit quality of the Group’s risk assets; – maintaining syndicated debt facility arrangements. Arrangements consist of a multi-currency term loan with a maximum commitment of $US117 million or equivalent, a multi-currency revolving loan facility with a maximum commitment of $US78 million or equivalent, a multi-currency revolving loan facility with a maximum commitment of $100 million or equivalent and a bank guarantee facility with a maximum commitment of $135 million to be used primarily for satisfying regulatory requirements; and – continued management of discretionary expenses within each business unit and support group. 1.3.3 Liquidity The Group actively manages liquidity risk by preparing cash flow forecasts for future periods, reviewing them regularly with senior management, maintaining a committed credit facility, and engaging regularly with its debt providers. In FY22, cash and cash equivalents increased by $28.3 million to $175.4 million as at 30 June 2022. This increase was driven by inflows from the drawdown of debt and operating cash activities. These were partially offset by outflows associated with the acquisitions of Jacaranda Financial Planning and Laminar Capital and the payment of the final FY21 and interim FY22 dividends. 1.3.4 Debt Perpetual’s corporate debt as at 30 June 2022 was $260.8 million compared to $170.3 million at the end of FY21. An additional $75 million of debt was drawn in FY22 to fund various strategic initiatives. An additional $122.3 million of debt facilities remain undrawn as at 30 June 2022. $132.4 million of bank guarantees have been issued under the syndicated facilities. The bank guarantees are not shown on the balance sheet. The facility is subject to the Group meeting certain debt covenants including shareholder funds as a percentage of total assets, a maximum ratio of gross debt to EBITDA and a minimum interest cover. The Group complied with all the relevant covenants throughout the period. The Group’s gearing ratio is 22.0% (FY21: 15.9%) at the end of FY22. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202277 1.4 Regulatory Developments and Business Risks 1.4.1 Regulatory developments The financial services industry continues to be subject to legislative and regulatory reform which affects or could affect the Group’s operations globally. The following summarises key regulatory change projects that commenced in the last reporting period or are set to commence in this period. Australia Financial Accountability Regime (FAR) The previous Government had proposed to extend the Banking Executive Accountability Regime (BEAR) to all APRA regulated entities, including RSE licensees – the Financial Accountability Regime (FAR). The Financial Accountability Regime Bill had been introduced into the House of Representatives and been referred to the Senate Economics Legislation Committee for a report that was produced on 15 February 2022. However, the Bill was dissolved following dissolution of the Federal Parliament in light of the election in May 2022. The Group is awaiting further developments in order to consider the impact of the regime on the Group. Greenwashing Guidance On 14 June 2022, ASIC released an information sheet (22/141MR) for issuers of managed funds and superannuation products to help issuers avoid ‘greenwashing’ when offering or promoting sustainability-related products. The Group is conducting gap analysis and assessing marketing materials to ensure alignment with the ASIC guidance. Security Legislation Amendment (Critical Infrastructure) Act 2021 (formerly 2020) and Security Legislation Amendment (Critical Infrastructure Protection) Act 2022 These Acts propose an enhanced regulatory framework over physical facilities, supply chains, information technologies and communication networks, which if destroyed, degraded or rendered unavailable for an extended period, would significantly impact the social or economic wellbeing of the nation, or affect Australia’s ability to conduct national defence and ensure national security. The mandatory notification of cyber security incidents has commenced. From 8 July 2022, Responsible Entities of certain designated critical infrastructure assets will be required to prepare reports about critical cyber security incidents, that is a cyber security incident which has a significant impact on the availability of an asset within 12 hours of becoming aware of the incident; and other cyber security incidents (i.e., a cyber security incident which has a relevant impact on an asset) within 72 hours of becoming aware of the incident. From 8 October 2022, ‘reporting entities’ (being Responsible Entities and direct interest holders of certain designated critical infrastructure assets) will be required to give the following information to the Register: – with respect to responsible entities – operational information about the critical infrastructure asset; and – with respect to direct interest holders – interest and control information about the direct interest holder and the critical infrastructure asset. The Group has sought clarification from the regulator as to the application of these Acts to the Group’s activities and has implemented relevant aspects of these requirements, as applicable to the Group. Corporate Collective Investment Vehicle (CCIV) Regime On 23 June 2022, ASIC released new and updated guidance supporting the CCIV regime which commenced from 1 July 2022. The CCIV Act inserts a new Chapter 8B into the Corporations Act to establish a CCIV as a new type of company limited by shares. A CCIV will have a public company as a director (the Corporate Director) with an AFSL authorising it to operate the business. The CCIV will be able to conduct its affairs through sub-funds. Each sub-fund will constitute a distinct and protected part of the CCIV’s business, registered independently with ASIC, and segregated from any other sub-fund of the CCIV and receive returns referable to their share of capital in that sub-fund. The CCIV regime provides the ability to run multiple sub-funds under the same structure, which should allow a fund manager the ability to host all of its products within one single vehicle (with multiple and distinct sub-funds). Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report78 The CCIV regime also introduces amendments to the Income Tax Assessment Act, which contains rules that treat each CCIV sub-fund as a trust for tax purposes and the CCIV as the trustee of each CCIV sub-fund trust. Each CCIV sub-fund trust will, in turn, be deemed to be a unit trust with its members deemed to hold fixed entitlements to income and capital of the relevant sub-fund trust based on their entitlements to dividends and capital distributions of that CCIV sub-fund. The Group has varied a number of its AFSLs to allow licensees to provide financial product advice on and/or deal in securities in a CCIV. International UK – Financial Conduct Authority (FCA) Business Plan In April 2022, The Financial Conduct Authority (FCA) published its Business Plan for 2022/23. The Business Plan takes a different form to its predecessors. It’s a shorter summary of priorities and planned activity that relies more on links to other sources, particularly the three-year strategy the regulator has also published and the Regulatory Initiatives Grid. The Plan centres around three focus areas which demonstrate how the FCA positions its priorities moving forward which are: reducing and preventing serious harm – dealing with problem firms and the harm they cause; setting and testing higher standards – improving consumer outcomes, imposing ESG standards; and promoting competition and positive change – being globally competitive through high international standards. UK – Investment Firms Prudential Regime (IFPR) The IFPR came into effect in the UK on 1st January 2022. The legislation is designed to mirror the current EU prudential regime. As part of the implementation of necessary model and policy revisions and disclosures, Perpetual has assessed the relevant UK entity as an ‘SNI’ – small non-interconnected firm. In particular the ICAAP document is now replaced by an ICARA document which takes a much more thorough risk assessment of firms capital adequacy and wind-down processes. EU – Sustainable Finance Action Plan and Sustainable Disclosure Regulation (SFDR) After notable delays, the implementation of the second phase of the SFDR will take place in January 2023. SFDR’s function is to make disclosure of the financial products’ performance on ESG issues compulsory for asset managers as part of a wider push for the EU to leverage the power of capital markets to meet its emissions reduction targets. Perpetual has engaged external compliance consultants and legal counsel to assist with ensuring ongoing compliance with this legislation, including appropriate categorisation of Perpetual subsidiary firm funds. US – SEC Advisor Advertisement Rule Changes Amended Rule 206(4)-1 is a modernised marketing rule that impacts advertising and marketing for registered Investment Advisors. Firms must transition to the new marketing rule on or before 4 November 2022. We continue to work through implementation with our US Businesses. US – ESG Disclosures for Investment Advisers and Investment Companies The SEC proposed amendments to rules and disclosure forms to promote consistent, comparable and reliable information for investors concerning funds’ and advisers’ incorporation of ESG factors. The public comment period will close on 16 August 2022. If the proposed rules are adopted, we will work through implementation with our US Businesses. 1.4.2 Business risks Risk Management Framework Perpetual’s approach to risk management globally is based on a Risk Appetite Statement set by the Perpetual Board, which outlines the risk boundaries and minimum expectations of Perpetual Management. The Board’s Audit, Risk and Compliance Committee (ARCC) is responsible for overseeing Perpetual’s risk management process. Perpetual has dedicated Risk and Compliance functions, led by the Chief Risk Officer, which have day-to-day responsibility for the design, implementation and maintenance of Perpetual’s Risk Management Framework, and an independent Internal Audit department. The Risk Management Framework is underpinned by the Three Lines of Defence model. This model sees the first line, being business unit management, accountable for the day-to-day identification and management of risks. Perpetual’s Risk, Compliance and Client Advocacy functions represent the second line and are responsible for overseeing first line activities. Internal Audit provides independent assurance, representing the third line, and has an independent reporting line to the Chair of the ARCC. The Group’s Risk Management Framework and the Three Lines of Defence model are designed to manage and formulate responses to the key business risks faced by the Group which are set out below. The primary mitigants in place to manage these risks include Perpetual’s risk and compliance frameworks, policies, clearly defined behaviours and performance assessment process, education and risk and compliance training, defined governance processes and delegation of authorities. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202279 1.4.3 Risks relating to COVID-19 COVID-19 and the prevalence of new variants continues to have an impact on global economies and financial markets, resulting in significant economic uncertainty and market volatility. It has also led to material structural shifts in the behaviour of the economy and unprecedented actions by financial markets, governments and regulators. The consolidated entity continues to monitor the impact of COVID-19 on its operations, control environment and financial reporting as developments arise. This has resulted in several of the risk categories below to be heightened as the Group continues to respond to the challenges introduced by the pandemic. Perpetual’s Pandemic Response Plan was developed in line with regulatory guidance and defines an escalating series of response measures based on the World Health Organisation and Government pandemic alert levels. The plan was activated in January 2020 and has seen us implement enhanced measures as the pandemic worsened. Key measures include: – Perpetual’s crisis management processes have been activated with multiple teams established to monitor all aspects of the response including key risks, safety and business continuity; – segregation of teams into different cohorts to limit the impact of infection events; – remote working from home has been successfully implemented for all teams; – enhanced hygiene and cleaning practices have been implemented in Perpetual’s offices; – heightened monitoring of material service providers is in place to ensure they are responding effectively; and – enhanced monitoring and oversight by the Perpetual Executive Committee and the Perpetual Limited Board has been developed to identify, monitor and manage key business risks that have escalated through COVID-19. Perpetual’s global operations (including Barrow Hanley and Trillium in the US) continue to operate at full capacity. Response measures to regional events and changing government restrictions (such as localised lockdowns) are well practised and have not had a material impact on operations. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report80 1.4.4 Key business risks The key business risks faced by Perpetual are set out below. RISK CATEGORY RISK DESCRIPTION/IMPACT RISK MITIGANTS Strategic People Financial Risk arising from adverse strategic decisions, improper implementation of strategic decisions, a lack of responsiveness to industry changes or exposure to economic, market or demographic considerations that affect Perpetual’s market position and client value proposition. Risk arising from an inability to attract, engage and retain quality and appropriate people to execute Perpetual’s business strategy, particularly in key investment management roles. Risk arising from an inability to safeguard our people, clients and suppliers from work health and safety (WH&S) issues with potential detrimental impact. Risk that the strength of Perpetual’s balance sheet, profitability or liquidity are inadequate for its business activities. This includes inappropriate accounting, financial reporting, or related disclosures. Exposure to, or reliance on, revenue streams linked to equity markets resulting in potentially volatile earnings (revenue diversity and asset pricing market risk). – Considered strategic and business planning processes, including well defined Mergers and Acquisitions (M&A) Framework – Strategic measures cascaded through performance management – Application of Risk Appetite Statement in strategic decision-making and monitoring – Ongoing monitoring by Perpetual’s Executive Committee (ExCo) and reporting to Perpetual’s Board on strategic execution and achievement of intended benefits – Succession planning, talent identification programs, retention strategies, remuneration benchmarking and reporting to the People and Remuneration Committee – Alignment of remuneration outcomes, including asset manager (portfolio manager and investment analyst) remuneration, to longer term value creation for shareholders and clients – Employee engagement monitoring – Well defined WH&S policies, procedures and training – WH&S Committee – Incident and injury management processes – Employee Assistance Program – Employee engagement monitoring – Budget planning process – Reconciliation and review processes – Regular income and expense, debt and equity reviews – Internal and external auditors – Diversification of revenue sources – Active management of the cost base – Ongoing monitoring of key balance sheet metrics Impacts on profitability due to currency fluctuations. – Treasury Risk Management Framework – The US denominated debt has been designated as a net Investment Operational Risk arising from ineffective investment strategies relative to peers and benchmarks, non-adherence to investment style and investment governance or inadequate management of market, credit and liquidity risks within the funds or client accounts. Risk arising from inadequate or failed internal processes, systems, people or from external events. This includes (but is not limited to) processing errors, fraud or an event which disrupts business continuity. investment hedge in a foreign operation and provides a natural hedge for US denominated business lines – Well defined and disciplined investment processes and philosophy for selection – Established investment governance frameworks in place – Robust pre and post-trade investment compliance – Independent fund and mandate monitoring and reporting – Clearly defined policies, procedures, roles and responsibilities – Controls testing in the form of control self-assessment – Effective issues management processes to respond to events that may arise – Business continuity planning and disaster recovery programs – Independent assurance – Robust Insurance program covering all material insurable risks to the Perpetual Group Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202281 RISK CATEGORY RISK DESCRIPTION/IMPACT RISK MITIGANTS Information Technology & Cyber Security Outsourcing Environmental, Social & Governance Risk arising from failed, corrupted, breached or inadequate information systems resulting from inadequate infrastructure, applications, cloud services, security controls and support. Includes (but is not limited to) loss of confidentiality, integrity and availability of sensitive or critical data as well as business disruption resulting from a cyber security event or failure of technology service provider to meet business requirements. Risk that Perpetual enters into inappropriate servicing arrangements and/or services performed by external service providers, including related and third parties, that are not managed in line with the servicing contract or the operational standards. Risk arising from inadequate or inappropriate Environmental, Social and Governance (ESG) considerations in business and investment decision-making. Compliance & Legal Risk that Perpetual breaches its regulatory and legal obligations (including licence conditions and client commitments). Conduct Risk arising from conduct by Perpetual’s Directors, employees or contractors that is unethical or does not align with Perpetual’s values, policies or expected behaviours or, the expectation of Perpetual’s internal and external stakeholders. – Defined information security program and IT security policies – Implementation of operational security technology (including firewalls and antivirus) – Security (penetration) testing of key systems – Information security response plans – Business continuity planning and disaster recovery programs – Independent assurance – Cyber Insurance – Partnered with well-regarded and proven strategic partners – Outsourced relationships are managed at a senior level – Outsourcing and vendor management framework – Legal contracts/service level agreements in place and monitored – Independent assurance – Development and implementation of Sustainability Strategy – Partnered with well-regarded, environmental and socially responsible partners – Continued build out of ESG Investment capability in the US, UK and Australia reinforcing our commitment to ESG – Established and well defined governance framework – Well defined and disciplined ESG investment processes and philosophy for selection – Mandated training on Perpetual’s Code of Conduct and behaviours expected of all staff – Sustainable Finance Disclosure Regulation (SFDR) implementation – Independent legal and compliance team, and training across teams – Compliance obligations are documented and monitored – Clearly defined policies, procedures, roles and responsibilities – Controls testing in the form of control self-assessment – Independent assessment of issues for compliance implications – Independent assurance – Effective risk management framework that sets out how risk is managed, including Three Lines of Defence risk model and application of risk appetite statement which outlines the risk behaviours expected of all Perpetual Directors, employees and contractors – Mandated training on Perpetual’s Code of Conduct and Risk Management Framework and behaviours of all staff that form part of the performance assessment process – Partnered with well-regarded, environmental and socially responsible partners – Media monitoring – Net Promoter Score measurement and reporting – Whistleblowing arrangements managed by an independent vendor Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report82 1.5 Outlook While the macroeconomic and geopolitical conditions pose challenges for the global financial services industry, the outlook for Perpetual remains positive. Perpetual’s unique combination of businesses provides the Group with diversification of earnings and growth opportunities, and a level of downside protection in times of market volatility through our non-market linked revenues in PCT and PP. In addition, the strength of the Perpetual brand, built over generations as a leading provider of fiduciary services, has created a confidence and trust that gives the Group a strong foundation for future growth. Perpetual enters the new financial year with positive momentum across each division. The acquisition of Pendal is a significant milestone in Perpetual’s long history, bringing together two businesses with premium brands and aligned multi-boutique approaches, to create a leading global asset manager significantly leveraging the build-out of our global asset management business over the last two years. The completion of the Pendal acquisition will deliver significant scale and global reach, diversified independent brands promoting investment autonomy at all times and delivering a broad array of high quality investment capabilities, a global leadership position in ESG investing and a substantial, high-quality global distribution team, all complemented by our industry-leading wealth management and trustee businesses. The Perpetual Corporate Trust business continues to deliver consistent growth in its core offerings, and the newly created Perpetual Digital business is well positioned to support our clients’ needs and provide additional channels for earnings. Positive net flows and growth is also expected in Perpetual Private through its proven advice model and new capabilities via the integration and expansion of Jacaranda Financial Planning. Perpetual remains focused on its strategy to deliver disciplined growth with a larger balance sheet and proven track record of acquiring and integrating complementary capabilities that, together, deliver greater shareholder returns. We will continue to provide quarterly business updates on the underlying drivers of our business, the execution of our strategy and market conditions. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202283 Review of Businesses 2. Review of Businesses The results and drivers of financial performance in FY22 for the four Perpetual operating segments are described in the following sections. A description of revenues and expenses at the Group Support Services level is also provided. Perpetual Asset Management, our asset management division, is reported under its two operating segments Perpetual Asset Management International and Perpetual Asset Management Australia. 2.1 Perpetual Asset Management International 2.1.1 Business overview Perpetual Asset Management International (PAMI) is the operating segment that includes all asset management operations outside of Australia and New Zealand. PAMI provides world-class investment capabilities through two US-based subsidiary asset management boutiques; – Barrow Hanley – global asset manager with a consistent long-term track-record of value investing; and – Trillium – pioneering environmental, social and governance (ESG) investment firm with a 40-year history. With a strong presence in the US, complemented by a growing presence in the UK, Europe and Asia, PAMI is focused on meeting the needs of institutional and retail investors outside of Australia and New Zealand. 2.1.2 Financial performance In Australian dollars FOR THE PERIOD Revenue by asset class – Equities – Fixed income – Other Total revenue FY22 $M FY21 $M FY22 V FY21 FY22 V FY21 2H22 $M 198.7 122.2 20.1 0.1 16.6 0.3 76.5 3.4 63% 21% (0.2) (80%) 100.0 8.9 0.0 1H22 $M 98.7 11.1 0.0 2H21 $M 89.7 11.2 0.0 218.8 139.2 79.7 57% 109.0 109.8 100.9 1H21 $M 32.5 5.5 0.3 38.3 Operating expenses (162.6) (95.8) (66.8) EBITDA Depreciation and amortisation Equity remuneration expense Interest expense 56.2 43.4 (2.3) (0.4) (0.6) (1.7) (0.4) (0.6) Underlying profit before tax 52.9 40.7 12.8 (0.6) (0.0) (0.1) 12.1 (70%) 30% (34%) (12%) (13%) 30% (86.2) (76.4) (69.4) (26.3) 22.8 33.5 (1.1) (0.4) (0.3) 21.0 (1.1) (0.1) (0.3) 31.9 31.5 (0.9) 0.2 (0.5) 30.3 11.9 (0.8) (0.6) (0.1) 10.5 In FY22, Perpetual Asset Management International reported underlying profit before tax of $52.9 million, an increase of $12.1 million or 30% versus FY21. The increase on FY21 was largely driven by additional earnings from a full 12 months contribution of Barrow Hanley, together with higher average AUM over the period. This has been partially offset by the development of the CLO strategy, continued investment in global distribution capability and infrastructure to support the growth in the business. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report84 2.1.3 Drivers of performance Revenue FY22 revenue of $218.8 million increased by $79.7 million or 57% versus FY21, largely due to a full 12 months of Barrow Hanley results, higher average AUM driven by higher equity markets and favourable foreign exchange movement, partially offset with net outflows. Expenses FY22 expenses of $165.9 million was up $67.5 million or 69% compared to FY21, largely due to a full 12 months of Barrow Hanley operations, the impact of exchange rates, the development of the CLO strategy, investment in global distribution capability and infrastructure to support the growth in the business. 2.1.4 Assets under management PAMI closing AUM summary in Australian dollars AT END OF Institutional Intermediary All distribution channels US equities Global equities Equities Fixed income All asset classes AUM MOVEMENTS NET FLOWS FY22 $B NET FLOWS $B OTHER 1 $B FOREIGN EXCHANGE IMPACTS $B 62.2 6.9 69.1 44.2 15.8 60.0 9.2 69.1 (5.4) 0.4 (5.0) (5.5) 3.1 (2.4) (2.6) (5.0) (5.7) (0.6) (6.3) (3.0) (1.8) (4.8) (1.5) (6.3) 6.2 0.7 6.8 4.5 1.4 5.9 0.9 6.8 FY21 $B 67.0 6.6 73.6 48.2 13.0 61.2 12.4 73.6 2H22 $B (3.0) 0.0 (3.0) (3.2) 1.4 (1.9) (1.1) (3.0) 1H22 $B (2.3) 0.3 (2.0) (2.3) 1.7 (0.5) (1.4) (2.0) PAMI closing AUM summary in US dollars AT END OF Institutional Intermediary All distribution channels US equities Global equities Equities Fixed income All asset classes AUM MOVEMENTS NET FLOWS FY22 $B NET FLOWS $B OTHER 1 $B FOREIGN EXCHANGE IMPACTS $B 42.8 4.8 47.6 30.4 10.8 41.2 6.3 47.6 (3.9) 0.3 (3.6) (4.0) 2.2 (1.7) (1.9) (3.6) (3.7) (0.4) (4.1) (1.9) (1.2) (3.0) (1.1) (4.1) – – – – – – – – FY21 $B 50.3 4.9 55.3 36.2 9.8 46.0 9.3 55.3 2H22 $B (2.2) 0.0 (2.1) (2.3) 1.0 (1.3) (0.8) (2.1) 1H22 $B (1.7) 0.2 (1.5) (1.7) 1.3 (0.4) (1.1) (1.5) 2H21 $B (3.5) 0.3 (3.2) (2.3) (0.1) (2.4) (0.9) (3.2) 2H21 $B (2.7) 0.2 (2.5) (1.8) (0.1) (1.8) (0.7) (2.5) 1H21 $B (0.6) (0.1) (0.7) (0.5) (0.0) (0.6) (0.1) (0.7) 1H21 $B (0.5) (0.0) (0.5) (0.4) (0.0) (0.4) (0.1) (0.5) 1. Includes changes in market value of assets, income, reinvestments, distributions and asset class rebalancing within the Group’s diversified funds. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202285 AUM Perpetual Asset Management International AUM as at 30 June 2022 was $69.1 billion, a decrease of $4.5 billion on FY21. The decrease was driven by net outflows of $5.0 billion and lower equity markets phased particularly towards the end of the year, partly offset by strengthening of foreign exchange impacts. Outflows were largely in the institutional channel and were predominantly driven by US Equities and low margin fixed income mandates managed by Barrow Hanley, partially offset by net inflows and strong performance in Trillium. Revenue margin FOR THE PERIOD By asset class: – Equities – Fixed income Average revenue margin Performance fees in Australian dollars FY22 BPS FY21 BPS FY22 V FY21 FY22 V FY21 2H22 BPS 1H22 BPS 2H21 BPS 1H21 BPS 31 18 29 32 21 30 – – – (1) (3) (1) 32 18 30 31 19 29 31 18 29 FOR THE PERIOD By asset class: – Equities – Fixed income Total performance fees FY22 $M FY21 $M FY22 V FY21 FY22 V FY21 2H22 $M 1H22 $M 2H21 $M (0.3) – (0.3) (0.3) 2.3 2.0 (0.0) (2.3) (2.3) 14% (100%) (0.3) – (0.0) – (117%) (0.3) (0.0) (0.3) 0.0 (0.2) Average AUM revenue margins in FY22 at 29 bps have remained relatively stable since the acquisition of Barrow Hanley late in 1H21. 37 33 36 1H21 $M – 2.3 2.3 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report86 2.2 Perpetual Asset Management Australia 2.2.1 Business overview Perpetual Asset Management Australia (PAMA) is one of Australia’s most respected and longstanding active investment managers, focused on the needs of Australian and New Zealand investors. PAMA is a dynamic, active manager, offering an extensive range of specialist investment capabilities including Australian and global equities, credit and fixed income, multi-asset as well as Environmental, Social and Governance (ESG) focused products. 2.2.2 Financial performance FOR THE PERIOD Revenue by asset class 1 – Equities – Cash and fixed income – Other AUM related Total revenue Operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Interest expense FY22 $M 131.7 34.0 3.3 169.0 (108.7) 132.5 29.8 3.4 165.7 (112.5) 60.3 53.2 (5.5) (4.8) (0.1) (5.3) (5.7) (0.1) FY21 $M FY22 V FY21 FY22 V FY21 2H22 $M 1H22 $M 2H21 $M (0.8) 4.3 (0.1) 3.3 3.9 7.2 (0.3) 0.9 (0.0) 7.8 (1%) 14% (3%) 2% 3% 13% (5%) 16% (32%) 18% 65.2 17.4 1.6 84.2 (55.6) 28.5 (2.9) (2.1) (0.0) 66.5 16.6 1.6 84.8 (53.0) 31.8 (2.7) (2.7) (0.0) 70.7 14.6 1.2 86.6 (57.4) 29.2 (2.7) (2.8) (0.0) 1H21 $M 61.7 15.1 2.2 79.1 (55.1) 24.0 (2.6) (2.9) (0.1) Underlying profit before tax 49.9 42.2 23.6 26.4 23.7 18.5 1. Removed “other non-AUM related” category due to nominal balance. 1H22 revenue re-presented between Equities and Other AUM related by $0.3M. In FY22, Perpetual Asset Management Australia reported underlying profit before tax of $49.9 million, $7.8 million or 18% higher than FY21. The increase on FY21 was largely driven by an increase in average AUM to $25.1 billion due to higher average equity markets, improved performance and lower variable remuneration, partially offset by net outflows, distributions and product repricing primarily from the prior year. The cost to income ratio in FY22 was 70% compared to 75% in FY21. The improvement in cost to income ratio is driven by higher average AUM and disciplined cost management. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202287 2.2.3 Drivers of performance Revenue Perpetual Asset Management Australia generated revenue of $169.0 million in FY22, $3.3 million or 2% higher than in FY21. The increase in revenue on FY21 was mainly driven by higher average AUM due to higher average equity markets and improved investment performance, partially offset by lower performance fees, distributions, product repricing and net outflows primarily from the prior year. Australian Equities strategies generated $10.6 million in performance fees in FY22, mainly from the Pure Equity Alpha and Pure Microcap funds. Average AUM revenue margins in FY22 were 67 basis points (bps), 4 bps lower than FY21, driven by lower performance fees earned. Excluding performance fees earned, underlying average margins of 63 bps remained in line with the prior year, with the impact of prior year repricing being offset by a change in mix towards higher margin asset classes. Movements in average margins usually result from changes in the mix of AUM between lower-margin institutional and higher-margin retail investors, as well as changes in the mix of asset classes such as cash and fixed income (generally lower margin) and equities (generally higher margin) and the contribution of performance fees earned. Expenses Total expenses for Perpetual Asset Management Australia in FY22 were $119.1 million, $4.5 million or 4% lower than in FY21. The decrease in expenses on FY21 was mainly due to lower variable remuneration including the impact of lower performance fees paid, partially offset by investment in growth initiatives such as the launching of exchange traded managed funds. 2.2.4 Assets under management PAMA closing AUM summary AT END OF Institutional Intermediary Retail Listed Investment Vehicles All distribution channels Australian equities Global equities Equities Cash and fixed income Other All asset classes AUM MOVEMENTS NET FLOWS FY22 $B NET FLOWS $B OTHER 1 $B 3.9 12.4 4.1 0.9 21.3 11.7 1.3 13.0 7.5 0.8 21.3 (2.4) 0.8 (0.2) 0.0 (1.9) (1.0) 0.2 (0.8) (1.0) (0.1) (1.9) (0.0) (1.1) (0.3) (0.1) (1.5) (1.2) (0.6) (1.8) 0.2 0.0 (1.5) 24.7 FY21 $B 6.3 12.7 4.7 1.0 2H22 $B (2.4) 0.4 (0.1) 0.0 24.7 (2.2) 13.9 1.7 15.6 8.3 0.9 (0.3) 0.0 (0.3) (1.8) (0.0) (2.2) 1H22 $B (0.0) 0.4 (0.1) 0.0 0.3 (0.6) 0.2 (0.5) 0.8 (0.0) 0.3 2H21 $B 0.4 (0.6) (0.1) 0.0 (0.3) (1.0) 0.3 (0.7) 0.5 0.0 (0.3) 1H21 $B (1.5) (0.8) (0.2) 0.0 (2.5) (1.6) (0.1) (1.7) (0.8) (0.0) (2.5) 1. Includes changes in market value of assets, income, reinvestments, distributions and asset class rebalancing within the Group’s diversified funds. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report88 AUM Perpetual Asset Management Australia’s AUM as at 30 June 2022 was $21.3 billion, a decrease of $3.4 billion on FY21. The decrease was driven by net outflows of $1.9 billion, distributions and lower equity markets particularly towards the end of the year, partly offset by positive performance. Points of note in relation to the AUM and flows data for FY22: – outflows in the institutional channel include $1.7 billion from Enhanced Cash at low margin; and – inflows in the intermediary channel were from fixed income (primarily Diversified Income), Global Equities and Diversified Real Return. This was partly offset by outflows in Australian Equities, however at materially reduced levels compared to FY21. Revenue margin FOR THE PERIOD By asset class: 1 – Equities – Cash and fixed income – Other AUM related Average revenue margin Performance fees FOR THE PERIOD By asset class: – Equities – Cash and fixed income Total performance fees FY22 BPS FY21 BPS FY22 V FY21 FY22 V FY21 2H22 BPS 1H22 BPS 2H21 BPS 1H21 BPS 87 37 38 67 FY22 $M 10.6 1.2 11.8 94 35 43 71 – – – – (7) 2 (5) (4) 88 38 39 68 86 37 38 67 FY21 $M FY22 V FY21 FY22 V FY21 2H22 $M 1H22 $M 16.2 2.0 18.1 (5.5) (0.8) (6.3) (34%) (39%) (35%) 6.1 0.6 6.7 4.6 0.6 5.1 95 37 31 74 2H21 $M 10.9 1.2 12.1 92 33 57 68 1H21 $M 5.2 0.8 6.0 1. 1H22 Other AUM related margin re-presented in line with $0.3M revenue adjustment between Equities and Other AUM related. The drivers of revenue margins by asset class are described below: Equities: Revenue represents fees earned on Australian and Global equities products. Revenue in FY22 was $131.7 million, a decrease of 1% on FY21. FY22 revenue was impacted by lower performance fees and repricing. This was mostly offset by higher average AUM compared to FY21 as a result of higher average equity markets and improved performance, partially offset by net outflows and prior period distributions. The average margin in FY22 was 87 bps, 7 bps lower than FY21, primarily due to lower performance fees and repricing. Cash and fixed income: Revenue is derived from the management of cash and fixed income products. Revenue in FY22 was $34.0 million, an increase of 14% on FY21. The increase was mainly driven by the impact of net inflows in higher margin fixed income products. The FY22 revenue margin of 37 bps increased by 2 bps compared to FY21, mainly driven by a change in mix towards higher margin product (e.g. Diversified Income Fund). Other AUM related: Revenue mainly includes management fees for external funds on the WealthFocus platform. Revenue in FY22 was $3.3 million, a decrease of 3% on FY21 driven by prior year repricing, partly offset by slightly higher average AUM. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202289 2.3 Perpetual Private 2.3.1 Business overview Perpetual Private (PP) is an advisory services business focused on the comprehensive needs of families, businesses and communities. Perpetual Private aims to empower families, businesses and communities to achieve their aspirations by delivering advisory service excellence. Perpetual Private utilises a targeted client segment approach to grow its FUA by offering quality advice and wealth management services to established, wealthy business owners, medical practitioners and other professionals, not-for-profit organisations and native title trusts. In 2021, the business enhanced its Family Office service through the creation of a new team of specialists dedicated to ultra-high net worth clients and family offices. Perpetual Private acquired Jacaranda Financial Planning, a leading Sydney and Melbourne-based boutique advisory firm focused on the high net worth market segment in August 2021. Perpetual Private is one of Australia’s largest managers of philanthropic funds. Philanthropy and fiduciary services remain an important part of our heritage and contributor to our business. Funds under advice for charitable trusts and endowments funds was $3.5 billion at the end of FY22. 2.3.2 Financial performance FOR THE PERIOD Market related revenue Non-market related revenue Total revenues Operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Interest expense Underlying profit before tax Funds under advice ($B) Closing FUA Average FUA FY22 $M 153.0 58.3 211.2 FY21 $M 126.7 57.1 183.8 (151.5) (134.2) 59.7 (9.3) (4.0) (2.1) 44.3 49.6 (10.5) (3.5) (0.6) 35.0 FY22 V FY21 FY22 V FY21 21% 2% 15% (13%) 20% 11% (13%) (277%) 26.3 1.2 27.5 (17.3) 10.1 1.2 (0.5) (1.6) 9.3 2H22 $M 75.1 29.1 104.3 (75.9) 28.3 (4.7) (2.2) (1.1) 1H22 $M 77.9 29.1 107.0 (75.6) 31.4 (4.7) (1.8) (1.0) 26% 20.4 23.9 2H21 $M 65.6 29.0 94.5 1H21 $M 61.1 28.1 89.2 (67.9) (66.3) 26.7 23.0 (5.0) (1.9) (0.1) 19.7 (5.5) (1.7) (0.5) 15.3 $17.4B $17.0B $18.3B $15.4B $0.4B $2.9B 2% 19% $17.4B $19.0B $17.0B $15.5B $18.4B $18.3B $16.1B $14.7B Market related revenue margin 84bps 82bps – 2bps 82bps 85bps 81bps 83bps In FY22, Perpetual Private reported underlying profit before tax of $44.3 million, $9.3 million or 26% higher than FY21. The increase on FY21 was mainly driven by higher market related revenue due to higher average equity markets, positive net flows driven by the growth of the business and acquisitions, higher performance fees due to strong performance of the portfolio and non-market related revenue improving with higher insurance revenue partly offsetting the impact of the low interest rate environment. Perpetual Private experienced continued new client growth within the high net worth segment in FY22, supported by the organic growth of the business and acquisition of Jacaranda. The cost to income ratio in FY22 was 79% compared to 81% in FY21. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report90 2.3.3 Drivers of performance Revenue Perpetual Private generated revenue of $211.2 million in FY22, $27.5 million higher or 15% higher than FY21. Market related revenue was $153.0 million, $26.3 million or 21% higher than FY21. The increase compared to FY21 was mainly due to higher average equity markets, positive net flows, strong performance of the portfolio and receipt of performance fees. Non-market related revenue was $58.3 million, $1.2 million or 2% higher than FY21. The increase was mainly driven by an uplift in Fordham and higher insurance revenue driven by Priority Life, partially offset by a low interest rate environment and legacy product closure. Perpetual Private’s market related revenue margin was 84 bps (80 bps excluding performance fees) in FY22 compared to 82 bps in FY21. Expenses Total expenses for Perpetual Private in FY22 were $166.9 million, $18.1 million or 12% higher than FY21. The increase in expenses on FY21 was mainly driven by continued investment in supporting future business growth, acquisition of Jacaranda, higher variable remuneration and technology investments. 2.3.4 Funds under advice Perpetual Private’s FUA at the end of FY22 was $17.4 billion, $0.4 billion or 2% higher than FY21, primarily due to positive net flows supported by the organic growth and the acquisition of Jacaranda Financial Planning partly offset by the drop in investment markets. FUA for Jacaranda Financial Planning was $0.9 billion at the end of FY22. AT END OF Total FUA FY22 $B 17.4 NET FLOWS $B OTHER 1 $B 1.0 (0.6) FY21 $B 17.0 2H22 $B 17.4 1H22 $B 19.0 2H21 $B 17.0 1H21 $B 15.5 1. Includes reinvestments, distributions, income and asset growth and $0.9 billion from the addition of Jacaranda Financial Planning in August 2021. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202291 2.4 Perpetual Corporate Trust 2.4.1 Business overview Perpetual Corporate Trust (PCT) is the leading provider of corporate trustee, agency, custody and digital solutions to the managed funds and debt capital markets industry comprising of the following: Perpetual Digital – Perpetual Digital combines PCT’s existing digital assets and the platform of Laminar Capital, acquired in October 2021, to provide innovative solutions to PCT clients. Perpetual Digital provides a holistic and growing number of products including Data Services (RBA & ESMA regulatory, investor and intermediary reporting), Perpetual Roundtables (benchmarking, industry and client portfolio insights) and our new Perpetual Intelligence platform-as-a-service products providing a multitude of digital solutions to the banking and financial services industry. The newly acquired Laminar Capital which is a specialist debt markets and advisory business includes the Treasury Direct platform and the new specialised capability of Laminar’s ESG Risk Score. Debt Market Services – provides a holistic suite of products which include trustee, agency, trust management, accounting, document custody and standby servicing solutions to the Australian debt capital markets and securitisation industry. Managed Funds Services – provides services including independent responsible entity, custodian, wholesale trustee, investment management and accounting. Singapore products include trustee, agency and escrow services. Managed Funds Services has a global client base serviced from our Singapore and Australian offices, administrating a broad range of asset classes including property and infrastructure, debt, fixed income, equity, private equity, emerging markets and hedge funds. 2.4.2 Financial performance FOR THE PERIOD Debt Market Services 1 Managed Funds Services Perpetual Digital1 Total revenues Operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Interest expense FY22 $M 68.7 70.3 19.5 158.5 (75.4) 83.1 (8.0) (1.8) (0.7) FY21 $M 62.4 59.8 12.6 134.9 (60.9) 74.0 (8.6) (1.2) (0.4) Underlying profit before tax 72.6 63.8 FY22 V FY21 FY22 V FY21 6.3 10.5 6.9 23.7 10% 17% 54% 18% 2H22 $M 35.6 36.8 9.6 82.0 1H22 $M 33.1 33.5 9.9 76.6 (14.6) (24%) (41.0) (34.4) 9.1 0.6 (0.6) (0.2) 8.9 12% 7% (51%) (50%) 40.9 (4.0) (1.1) (0.3) 14% 35.5 42.1 (4.0) (0.7) (0.4) 37.1 2H21 $M 31.8 31.0 6.4 69.2 (31.5) 37.7 (4.2) (0.7) (0.2) 32.6 1H21 $M 30.6 28.8 6.2 65.6 (29.3) 36.3 (4.4) (0.5) (0.2) 31.2 1. Newly formed service line which includes revenue from Laminar Capital and PCT’s Data and Analytics Solutions (previously reported under Debt Markets Services). In FY22, Perpetual Corporate Trust reported underlying profit before tax of $72.6 million, $8.9 million or 14% higher than FY21. The cost to income ratio in FY22 was 54% compared to 53% in FY21. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report92 2.4.3 Drivers of performance Revenue Perpetual Corporate Trust generated revenue of $158.5 million in FY22, $23.7 million or 18% higher than in FY21. The main drivers of the improvement by business line were as detailed below. In FY22, Debt Markets Services revenue was $68.7 million, $6.3 million or 10% higher than in FY21. The primary drivers for the increase on FY21 were underlying growth in the securitisation portfolio from new and existing clients, particularly from RMBS non bank and ABS clients, higher document custody volumes and additional new clients in trust management. In FY22, Managed Funds Services revenue was $70.3 million, $10.5 million or 17% higher than FY21. The increase was primarily due to continued market activity within commercial property and managed investment funds segments, supported by higher asset prices. In FY22, Perpetual Digital revenue was $19.5 million, $6.9 million or 54% higher than FY21. The increase was primarily due to the acquisition of Laminar Capital together with continued growth from new and existing products. Expenses Total expenses for Perpetual Corporate Trust in FY22 were $85.9 million, $14.8 million or 21% higher than FY21. The increase in expenses on FY21 was mainly driven by higher employment and technology costs to support business growth, new digital solutions and to meet regulatory requirements, together with the operating expenses of Laminar Capital. 2.4.4 Funds under administration AT END OF Public Market Securitisation RMBS – bank (ADI) RMBS – non bank CMBS and ABS Balance Sheet Securitisation RMBS – repos Covered bonds FY22 $B 57.4 78.4 52.3 398.9 76.3 56.9 63.9 39.5 331.4 72.9 Debt Market Services – Securitisation 1 663.4 564.6 Corporate and Structured Finance 18.8 18.3 Total Debt Market Services 682.2 582.9 Custody Wholesale Trustee Responsible Entity Singapore Managed Funds Services 212.0 100.6 49.5 48.0 410.1 173.4 79.4 48.2 38.9 339.9 Total FUA 1,092.3 922.8 1. Includes warehouse and liquidity finance facilities. FY21 $B FY22 V FY21 FY22 V FY21 2H22 $B 1H22 $B 57.7 70.1 45.5 366.1 73.2 612.7 18.2 2H21 $B 56.9 63.9 39.5 1H21 $B 65.5 56.9 39.5 331.4 72.9 367.7 80.3 564.6 609.8 18.3 18.5 57.4 78.4 52.3 398.9 76.3 663.4 18.8 682.2 630.9 582.9 628.3 212.0 100.6 49.5 48.0 410.1 187.9 83.1 46.0 42.5 173.4 163.9 79.4 48.2 38.9 75.1 32.2 36.7 359.5 339.9 307.9 1,092.3 990.4 922.8 936.2 0.5 14.5 12.8 67.6 3.5 98.8 0.5 99.3 38.6 21.3 1.3 9.1 70.2 169.5 1% 23% 32% 20% 5% 18% 3% 17% 22% 27% 3% 23% 21% 18% At the end of FY22, Securitisation FUA in the Debt Market Services business was $663.4 billion, an increase of $98.8 billion or 18% on FY21. The movement was driven by higher issuances in lower margin RMBS – repos and continued growth in the RMBS – non bank and ABS. At the end of FY22, Managed Funds Services FUA was $410.1 billion, an increase of $70.2 billion or 21% on FY21. The increase was driven by growth in all segments. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202293 2.5 Perpetual Group Support Services 2.5.1 Business overview Group Support Services consist of Group Investments, CEO, Finance, Corporate Affairs, Marketing, Legal, Audit, Risk, Compliance, Company Secretary, Technology, Project & Change Management, Operations, Product and People & Culture. It provides technology, operations, vendor management, marketing, property, legal, risk, financial management and human resources support to the business units. Costs retained by Group Support Services reflect costs that management deems to be associated with corporate functions rather than reportable business segment activity. These include costs associated with the Board of Directors and 50% of the costs associated with the Group Executives of each of the Group Support Services business units. Costs and revenues associated with the capital structure of the Group, including interest income, financing costs, ASX listing fees and distributions of employee owned units of acquired entities are also retained within Group Support Services. 2.5.2 Financial performance FOR THE PERIOD Interest income Other income Total revenue Operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Interest expense FY22 $M 0.3 9.9 10.2 (21.0) (10.9) (2.1) (0.1) (5.5) FY21 $M 0.4 16.7 17.1 (23.3) (6.2) (1.7) (0.7) (3.9) FY22 V FY21 FY22 V FY21 (0.2) (6.7) (6.9) 2.2 (4.7) (0.4) 0.6 (1.6) (38%) (40%) (40%) 10% (76%) (25%) 88% (43%) 2H22 $M 0.2 3.2 3.4 (8.4) (5.0) (1.0) 0.3 (3.1) Underlying profit before tax (18.5) (12.4) (6.2) (50%) (8.8) 1H22 $M 0.1 6.7 6.8 (12.6) (5.8) (1.1) (0.4) (2.4) (9.7) 2H21 1 $M 0.2 8.5 8.7 (12.7) (4.0) (1.0) (0.4) (1.6) (7.1) 1H21 1 $M 0.2 8.2 8.4 (10.5) (2.1) (0.6) (0.3) (2.2) (5.3) 1. Prior periods comparative has been restated due to a change in accounting policy on the treatment of Software-as-a-service (SaaS) costs. Refer to Section 6-4 in the Financial Statements. 2.5.3 Drivers of performance Revenue In FY22, Group Investments revenue was $10.2 million, $6.9 million or 40% lower than FY21. The decrease was driven by movement in the investing in product (IIP) portfolio and lower distribution income received from unit trust investments held in seed funds, partially offset by higher investment income. Expenses Total expenses, comprising operating expenses, depreciation, amortisation, equity remuneration and interest expenses for Group Support Services in FY22 were $28.7 million, $0.8 million or 3% lower than in FY21. The decrease in total expenses was predominantly due to lower variable remuneration and disciplined cost management across the support areas, offset by distributions on the employee-owned units in Barrow Hanley and higher interest expense. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report94 Appendices 3. Appendices 3.1 Appendix A: Segment Results PERIOD FY22 2H22 1H22 PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M Operating revenue Operating expenses EBITDA Depreciation and amortisation Equity remuneration EBIT Interest expense UPBT Significant Items Pre Tax Reportable Segment NPBT 218.8 169.0 211.2 (162.6) (108.7) (151.5) 56.2 60.3 59.7 (9.3) (4.0) (5.5) (4.8) 50.0 46.4 (0.1) (2.1) 49.9 44.3 (2.2) 47.7 (5.0) 39.2 (2.3) (0.4) 53.5 (0.6) 52.9 (41.0) 11.9 158.5 (75.4) 83.1 (8.0) (1.8) 73.3 (0.7) 72.6 (2.7) 69.9 TOTAL $M 767.7 10.2 (21.0) (519.2) (10.9) 248.5 (2.1) (0.1) (27.2) (11.0) (13.0) 210.2 (5.5) (9.0) (18.5) 201.2 (13.1) (64.0) (31.6) 137.2 PERIOD FY21 2H21 1H21 Operating revenue Operating expenses 1 EBITDA Depreciation and amortisation 1 Equity remuneration EBIT Interest expense 1 UPBT 1 Significant Items Pre Tax 1 Reportable Segment NPBT 1 PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M TOTAL $M 139.2 165.7 183.8 134.9 17.1 640.6 PERPETUAL ASSET PERPETUAL MANAGE- MENT INTER- ASSET MANAGE- MENT PERPETUAL CORPORATE PERPETUAL NATIONAL AUSTRALIA PRIVATE PERPETUAL PERPETUAL ASSET ASSET MANAGE- MANAGE- GROUP SUPPORT SERVICES $M 8.7 MENT INTER- MENT PERPETUAL CORPORATE TOTAL NATIONAL AUSTRALIA PRIVATE PERPETUAL GROUP SUPPORT SERVICES $M 8.4 TRUST $M 65.6 $M 79.1 $M 89.2 (95.8) (112.5) (134.2) (60.9) (23.3) (426.6) (69.4) (57.4) (67.9) (12.7) (239.0) (26.3) (55.1) (66.3) (29.3) (10.5) (187.6) 43.4 53.2 (1.7) (0.4) 41.3 (0.6) 40.7 (68.1) (27.4) (5.3) (5.7) 42.2 (0.1) 42.2 0.9 43.1 49.6 (10.5) (3.5) 35.6 (0.6) 35.0 (2.1) 33.0 74.0 (8.6) (1.2) 64.2 (0.4) 63.8 (3.5) 60.3 (6.2) (1.7) (0.7) (8.5) (3.9) 214.0 (27.7) (11.4) 174.8 (5.5) (12.4) 169.3 7.3 (65.5) (5.1) 103.8 1. Prior periods comparative has been restated due to a change in accounting policy on the treatment of Software-as-a-service (SaaS) costs. Refer to Section 6-4 in the Financial Statements. PERPETUAL ASSET PERPETUAL MANAGE- MENT INTER- ASSET MANAGE- MENT PERPETUAL CORPORATE PERPETUAL NATIONAL AUSTRALIA PRIVATE $M 109.0 $M 84.2 $M 104.3 PERPETUAL ASSET PERPETUAL MANAGE- MENT INTER- ASSET MANAGE- GROUP SUPPORT SERVICES $M 3.4 MENT PERPETUAL CORPORATE PERPETUAL TOTAL NATIONAL AUSTRALIA PRIVATE $M $M 382.8 109.8 $M 84.8 $M 107.0 TRUST $M 76.6 GROUP SUPPORT SERVICES $M 6.8 (86.2) (55.6) (75.9) (8.4) (267.2) (76.4) (53.0) (75.6) (34.4) (12.6) (252.0) 22.8 28.5 28.3 40.9 (5.0) 115.6 33.5 (5.8) 132.9 TRUST $M 82.0 (41.0) (4.0) (1.1) 35.8 (0.3) 35.5 (0.9) 34.7 TRUST $M 69.2 (31.5) 37.7 (4.2) (0.7) 32.8 (0.2) 32.6 (1.8) 30.8 (1.0) 0.3 (5.7) (3.1) (8.8) (13.1) (4.0) (1.0) (0.4) (5.5) (1.6) (7.1) 3.4 (1.1) (0.4) 21.3 (0.3) 21.0 (21.1) (0.2) $M 100.9 31.5 (0.9) 0.2 30.7 (0.5) 30.3 (40.9) (10.7) (2.9) (2.1) 23.6 (0.0) 23.6 (1.4) 22.2 $M 86.6 29.2 (2.7) (2.8) 23.7 (0.0) 23.7 0.6 24.2 (4.7) (2.2) 21.5 (1.1) 20.4 (3.1) 17.3 $M 94.5 26.7 (5.0) (1.9) 19.8 (0.1) 19.7 (1.0) 18.7 (13.7) (5.4) 96.5 (4.9) 91.6 (1.1) (0.1) 32.2 (0.3) 31.9 (39.6) (19.8) (21.9) 52.0 12.1 31.8 (2.7) (2.7) 26.4 (0.0) 26.4 (0.8) 25.6 31.4 (4.7) (1.8) 24.9 (1.0) 23.9 (2.0) 22.0 42.1 (4.0) (0.7) 37.5 (0.4) 37.1 (1.8) 35.3 $M 359.9 120.9 (13.9) (5.6) 101.5 (2.4) 99.1 $M 38.3 11.9 (0.8) (0.6) 10.6 (0.1) 10.5 (39.8) (27.2) (3.7) 59.3 (16.7) 24.0 23.0 36.3 (2.6) (2.9) 18.5 (0.1) 18.5 0.3 18.8 (5.5) (1.7) 15.8 (0.5) 15.3 (1.0) 14.3 (4.4) (0.5) 31.4 (0.2) 31.2 (1.7) 29.5 TOTAL $M 384.9 (13.6) (5.6) 113.8 (4.1) 109.6 (24.4) 85.2 TOTAL $M 280.6 93.0 (13.9) (5.9) 73.3 (3.1) 70.3 (25.8) 44.5 (1.1) (0.4) (7.3) (2.4) (9.7) (0.0) (9.7) (2.1) (0.6) (0.3) (3.0) (2.2) (5.3) 3.9 (1.4) Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 2022PERIOD FY22 2H22 1H22 95 PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M 104.3 (75.9) 82.0 (41.0) 3.4 PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M TOTAL $M 109.8 84.8 107.0 76.6 6.8 384.9 TOTAL $M 382.8 109.0 (86.2) 22.8 (1.1) (0.4) 21.3 (0.3) 21.0 (21.1) (0.2) 84.2 (55.6) 28.5 (2.9) (2.1) 23.6 (0.0) 23.6 (1.4) 22.2 (8.4) (267.2) (76.4) (53.0) (75.6) (34.4) (12.6) (252.0) 28.3 40.9 (5.0) 115.6 33.5 (4.7) (2.2) 21.5 (1.1) 20.4 (3.1) 17.3 (4.0) (1.1) 35.8 (0.3) 35.5 (0.9) 34.7 (1.0) 0.3 (5.7) (3.1) (8.8) (13.1) (13.7) (5.4) 96.5 (4.9) 91.6 (1.1) (0.1) 32.2 (0.3) 31.9 (39.6) (19.8) (21.9) 52.0 12.1 31.8 (2.7) (2.7) 26.4 (0.0) 26.4 (0.8) 25.6 31.4 (4.7) (1.8) 24.9 (1.0) 23.9 (2.0) 22.0 42.1 (4.0) (0.7) 37.5 (0.4) 37.1 (1.8) 35.3 (5.8) 132.9 (1.1) (0.4) (7.3) (2.4) (9.7) (0.0) (9.7) (13.6) (5.6) 113.8 (4.1) 109.6 (24.4) 85.2 PERIOD FY21 2H21 1H21 Appendices 3. Appendices 3.1 Appendix A: Segment Results Operating revenue Operating expenses EBITDA Depreciation and amortisation Equity remuneration Interest expense EBIT UPBT Significant Items Pre Tax Reportable Segment NPBT Operating revenue Operating expenses 1 EBITDA Depreciation and amortisation 1 Equity remuneration Interest expense 1 EBIT UPBT 1 Significant Items Pre Tax 1 Reportable Segment NPBT 1 $M 211.2 59.7 (9.3) (4.0) PERPETUAL ASSET PERPETUAL MANAGE- MENT INTER- ASSET MANAGE- $M $M 218.8 169.0 MENT PERPETUAL CORPORATE PERPETUAL NATIONAL AUSTRALIA PRIVATE GROUP SUPPORT SERVICES $M 10.2 TRUST $M 158.5 TOTAL $M 767.7 (162.6) (108.7) (151.5) (75.4) (21.0) (519.2) 56.2 60.3 (5.5) (4.8) (2.3) (0.4) 53.5 (0.6) 52.9 (41.0) 11.9 50.0 46.4 (0.1) (2.1) 83.1 (8.0) (1.8) 73.3 (0.7) 72.6 (2.7) 69.9 49.9 44.3 (18.5) 201.2 (2.2) 47.7 (5.0) 39.2 (13.1) (64.0) (31.6) 137.2 (10.9) 248.5 (2.1) (0.1) (27.2) (11.0) (13.0) 210.2 (5.5) (9.0) PERPETUAL ASSET PERPETUAL MANAGE- MENT INTER- ASSET MANAGE- MENT PERPETUAL CORPORATE PERPETUAL NATIONAL AUSTRALIA PRIVATE $M 139.2 $M $M 165.7 183.8 TRUST $M 134.9 GROUP SUPPORT SERVICES $M 17.1 (95.8) (112.5) (134.2) (60.9) (23.3) (426.6) 43.4 53.2 (1.7) (0.4) 41.3 (0.6) 40.7 (68.1) (27.4) (5.3) (5.7) 42.2 (0.1) 42.2 0.9 43.1 49.6 (10.5) (3.5) 35.6 (0.6) 35.0 (2.1) 33.0 74.0 (8.6) (1.2) 64.2 (0.4) 63.8 (3.5) 60.3 TOTAL $M 640.6 214.0 (27.7) (11.4) 174.8 (5.5) (6.2) (1.7) (0.7) (8.5) (3.9) (12.4) 169.3 7.3 (65.5) (5.1) 103.8 1. Prior periods comparative has been restated due to a change in accounting policy on the treatment of Software-as-a-service (SaaS) costs. Refer to Section 6-4 in the Financial Statements. TOTAL $M 359.9 8.7 38.3 (12.7) (239.0) (26.3) (4.0) (1.0) (0.4) (5.5) (1.6) (7.1) 3.4 120.9 (13.9) (5.6) 101.5 (2.4) 99.1 11.9 (0.8) (0.6) 10.6 (0.1) 10.5 (39.8) (27.2) (3.7) 59.3 (16.7) PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M 89.2 65.6 8.4 TOTAL $M 280.6 (66.3) (29.3) (10.5) (187.6) 79.1 (55.1) 24.0 23.0 36.3 (2.6) (2.9) 18.5 (0.1) 18.5 0.3 18.8 (5.5) (1.7) 15.8 (0.5) 15.3 (1.0) 14.3 (4.4) (0.5) 31.4 (0.2) 31.2 (1.7) 29.5 (2.1) (0.6) (0.3) (3.0) (2.2) (5.3) 3.9 (1.4) 93.0 (13.9) (5.9) 73.3 (3.1) 70.3 (25.8) 44.5 100.9 (69.4) 31.5 (0.9) 0.2 30.7 (0.5) 30.3 (40.9) (10.7) 86.6 (57.4) 29.2 (2.7) (2.8) 23.7 (0.0) 23.7 0.6 24.2 94.5 (67.9) 26.7 (5.0) (1.9) 19.8 (0.1) 19.7 (1.0) 18.7 69.2 (31.5) 37.7 (4.2) (0.7) 32.8 (0.2) 32.6 (1.8) 30.8 PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report96 3.1.1 Breakdown of Significant Items Pre Tax PERIOD FY22 2H22 1H22 Transaction and Integration costs 1 – Trillium – Barrow Hanley – Other Non-cash amortisation of acquired intangibles 2 Unrealised gains/losses on financial assets 3 Accrued incentive compensation liability 4 PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M (27.0) (3.5) (23.4) – (20.3) – 6.4 (0.2) (2.2) (0.5) – – (0.2) – (1.9) – – – (2.2) (2.9) – – – – (0.5) (2.2) – – – – – – – (13.1) – TOTAL $M (29.8) (3.5) (23.4) (2.9) (25.5) (15.1) 6.4 Significant Items Pre Tax (41.0) (2.2) (5.0) (2.7) (13.1) (64.0) (1.4) (3.1) (0.9) (13.1) (39.6) (19.8) (0.8) (2.0) (1.8) (0.0) (24.4) 1. Relates to costs associated with the acquisition/establishment of Barrow Hanley, Trillium and other entities. Costs include professional fees, administrative and general expenses and staff costs related to specific retention and performance grants. 2. Relates to amortisation expense on customer contracts and non-compete agreements acquired through business combinations. 3. Relates to unrealised mark to market gains and losses on EMCF, seed fund investments and financial assets held for regulatory purposes. 4. This liability reflects the value of employee-owned units in Barrow Hanley. PERPETUAL PERPETUAL ASSET ASSET MANAGE- MANAGE- $M $M PERPETUAL GROUP SUPPORT SERVICES $M MENT INTER- MENT PERPETUAL CORPORATE NATIONAL AUSTRALIA PRIVATE MENT INTER- MENT PERPETUAL CORPORATE TOTAL NATIONAL AUSTRALIA PRIVATE $M (1.6) (1.6) (1.5) – – – – TRUST $M (0.3) (0.3) (0.6) – – – – – – – – – – (1.4) (13.1) PERPETUAL PERPETUAL ASSET ASSET MANAGE- MANAGE- $M (12.2) (1.6) (8.7) (1.9) (12.3) (14.5) (0.6) $M (16.7) (2.0) (14.8) (10.1) – – 7.0 $M (0.2) – – – – (0.2) (0.6) – – – – – – PERPETUAL TRUST $M (0.1) GROUP SUPPORT SERVICES $M – – – – – – (0.0) (0.1) (1.7) – – – – $M (0.6) (0.6) (1.4) – – – – TOTAL $M (17.7) (2.0) (14.8) (0.9) (13.1) (0.6) 7.0 (10.2) (1.6) (8.7) (10.3) – – (0.6) (21.1) Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 2022PERIOD FY22 2H22 1H22 97 PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M (10.2) (1.6) (8.7) – (10.3) – (0.6) (21.1) – – – – – (1.4) – (1.4) (1.6) (0.3) – – (1.6) (1.5) – – – – (0.3) (0.6) – – – – – – – (13.1) – PERPETUAL ASSET MANAGE- MENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M GROUP SUPPORT SERVICES $M (16.7) (2.0) (14.8) – (10.1) – 7.0 (0.2) (0.6) (0.1) – – (0.2) – (0.6) – – – (0.6) (1.4) – – – – (0.1) (1.7) – – – – – – – (0.0) – TOTAL $M (12.2) (1.6) (8.7) (1.9) (12.3) (14.5) (0.6) TOTAL $M (17.7) (2.0) (14.8) (0.9) (13.1) (0.6) 7.0 (3.1) (0.9) (13.1) (39.6) (19.8) (0.8) (2.0) (1.8) (0.0) (24.4) 3.1.1 Breakdown of Significant Items Pre Tax Transaction and Integration costs 1 – Trillium – Barrow Hanley – Other Non-cash amortisation of acquired intangibles 2 Unrealised gains/losses on financial assets 3 Accrued incentive compensation liability 4 PERPETUAL ASSET PERPETUAL MANAGE- MENT INTER- ASSET MANAGE- MENT PERPETUAL CORPORATE PERPETUAL NATIONAL AUSTRALIA PRIVATE $M (27.0) (3.5) (23.4) (20.3) – – 6.4 $M (0.2) – – – – (0.2) (1.9) $M (2.2) (2.2) (2.9) – – – – GROUP SUPPORT SERVICES $M – – – – – – (13.1) TRUST $M (0.5) (0.5) (2.2) – – – – TOTAL $M (29.8) (3.5) (23.4) (2.9) (25.5) (15.1) 6.4 Significant Items Pre Tax (41.0) (2.2) (5.0) (2.7) (13.1) (64.0) 1. Relates to costs associated with the acquisition/establishment of Barrow Hanley, Trillium and other entities. Costs include professional fees, administrative and general expenses and staff costs related to specific retention and performance grants. 2. Relates to amortisation expense on customer contracts and non-compete agreements acquired through business combinations. 3. Relates to unrealised mark to market gains and losses on EMCF, seed fund investments and financial assets held for regulatory purposes. 4. This liability reflects the value of employee-owned units in Barrow Hanley. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report98 3.2 Appendix B: Bridge For FY22 Statutory Accounts and OFR UPAT represents Perpetual’s measure of the results for the ongoing business of the Group as determined by the Board and management. UPAT has been calculated in accordance with ASIC’s Regulatory Guide 230 – Disclosing non-IFRS financial information has been followed when presenting this information. UPAT attributable to equity holders of Perpetual Limited has not been audited by the Group’s external auditors, however, the adjustments have been extracted from the books and records that have been reviewed. Underlying profit after tax attributable to equity holders of Perpetual Limited is disclosed as it is useful for investors to gain a better understanding of Perpetual’s financial results from normal operating activities. Post completion of Barrow Hanley acquisition in November 2020, the definition of UPAT was revised to reflect changes to the Group’s operating cash flows from both existing and future opportunities. As shown in the table below, FY22 reporting adjusted NPAT for the four types of significant items: – those that are material in nature and in Perpetual’s view do not reflect normal operating activities; – non-cash tax-effected amortisation of acquired intangibles; – tax-effected unrealised gains/losses on financial assets, this excludes unrealised gains/losses on financial assets held as a hedge to the Investing in Product scheme; and – accrued incentive compensation liability. Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 202299 OFR ADJUSTMENTS FY22 STATUTORY ACCOUNTS EMCF 1 TRILLIUM BARROW HANLEY OTHER TRANSACTION AND INTEGRATION COSTS NON-CASH AMORTIS- ATION OF ACQUIRED INTANGIBLES UNREALISED GAINS/ LOSSES ON FINANCIAL ASSETS ACCRUED INCENTIVE COMPEN- SATION LIABILITY $M 749.6 $M (0.2) $M – $M – $M – $M – $M 18.3 $M – FY22 OFR $M 767.7 Revenue Staff related expenses excluding equity remuneration expense Occupancy expenses Administrative and general expenses Distributions and expenses relating to structured products Equity remuneration expense Depreciation and amortisation expense Financing costs (367.8) (6.4) (162.6) (0.2) 0.2 (13.4) (52.7) (9.2) Total expenses (612.2) 0.2 Net profit before tax Income tax expense Net profit after tax 137.3 (36.1) 101.2 – – – Significant Items (net of tax) Transaction and Integration costs – Trillium – Barrow Hanley – Other Non–cash amortisation of acquired intangibles Unrealised gains/losses on financial assets Accrued incentive compensation liability Net profit after tax attributable to equity holders 9.6 0.9 (6.4) (363.7) 0.5 10.9 2.0 1.2 1.1 1.8 3.5 3.5 (0.5) 3.0 1.8 23.4 23.4 (6.6) 16.8 25.5 25.5 25.5 (6.9) 18.6 2.9 2.9 (0.5) 2.4 (6.4) (149.2) – (11.1) (27.2) (8.8) (6.4) (566.5) (6.4) 201.2 1.7 (53.0) (3.2) (3.2) 15.1 (4.1) 10.9 (4.7) 148.2 (3.0) (16.8) (2.4) (18.6) (10.9) 4.7 101.2 1. Income from the EMCF structured products is recorded on a net basis, for statutory purposes, revenue and distributions are adjusted to reflect the gross revenue and expenses of these products. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report100 3.3 Appendix C: Perpetual Average Assets Under Management FOR THE PERIOD IN AUSTRALIAN DOLLARS By asset class: – US equities – Global equities – Fixed income PAMI average AUM By asset class: – Australian equities – Global equities – Cash and fixed income – Other PAMA average AUM PP average AUM FY22 $B 48.3 15.0 11.1 74.4 13.6 1.6 9.0 0.9 25.1 7.7 Total average AUM 107.2 FY21 $B FY22 V FY21 FY22 V FY21 29.6 8.0 8.0 45.6 12.9 1.2 8.5 0.8 23.5 6.8 75.8 18.8 7.0 3.1 28.9 0.7 0.3 0.5 0.1 1.6 0.9 31.4 63% 88% 39% 63% 5% 26% 6% 8% 7% 13% 41% FOR THE PERIOD IN US DOLLARS By asset class: – US equities – Global equities Total equities Fixed income PAMI average AUM FY22 $B 35.1 10.9 45.9 8.1 54.0 FY21 $B FY22 V FY21 FY22 V FY21 22.5 6.1 28.6 6.1 34.7 12.5 4.8 17.3 2.0 19.3 56% 79% 61% 32% 56% 2H22 $B 47.6 15.7 10.2 73.5 13.4 1.5 9.2 0.8 24.9 7.7 106.1 2H22 $B 34.3 11.3 45.5 7.3 52.9 1H22 $B 49.0 14.3 12.0 75.4 13.8 1.6 8.9 0.9 25.2 7.8 2H21 $B 45.5 11.9 12.6 70.1 13.5 1.4 7.8 0.8 23.5 7.1 108.4 100.7 1H22 $B 35.9 10.5 46.3 8.8 55.1 2H21 $B 35.0 9.2 44.1 9.7 53.8 1H21 $B 13.6 4.1 3.4 21.0 12.3 1.1 9.2 0.8 23.4 6.5 51.0 1H21 $B 10.1 3.0 13.1 2.5 15.6 Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 20223.4 Appendix D: Full Time Equivalent Employees AT END OF Perpetual Asset Management International Perpetual Asset Management Australia Perpetual Private Perpetual Corporate Trust Group Support Services Total operations Permanent Contractors Total operations 2H22 184 81 419 286 400 1,370 1,346 25 1,370 1H22 164 81 371 234 378 1,228 1,211 16 1,228 2H21 156 88 360 205 358 1,166 1,163 3 1,166 101 1H21 147 82 360 203 356 1,148 1,142 5 1,148 3.5 Appendix E: Dividend History Perpetual’s dividend policy is to a payout ratio range of between 60% and 90% of UPAT on an annualised basis. An extended history of Perpetual’s dividends paid including the dividend reinvestment price can be found via this link: perpetual.com.au/about/shareholders/dividend-history YEAR FY22 FY22 FY21 FY21 FY20 FY20 FY19 FY19 FY18 FY18 FY17 FY17 DIVIDEND DATE PAID Final 30 Sep 2022 Interim Final Interim Final Interim Final Interim Final Interim Final Interim 1 Apr 2022 24 Sep 2021 26 Mar 2021 25 Sep 2020 27 Mar 2020 30 Sep 2019 29 Mar 2019 8 Oct 2018 26 Mar 2018 29 Sep 2017 24 Mar 2017 DIVIDEND PER SHARE 97 cents 112 cents 96 cents 84 cents 50 cents 105 cents 125 cents 125 cents 140 cents 135 cents 135 cents 130 cents FRANKING RATE COMPANY TAX RATE DRP PRICE 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% Not determined at time of publication $34.67 $41.31 $32.34 $28.54 $28.06 $36.70 $41.62 $42.20 $50.34 $52.33 $51.86 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report102 3.6 Glossary AASB ABS ADI Australian Accounting Standards Board Asset backed securities Authorised deposit-taking institution All Ords All Ordinaries Price Index APRA ARCC ASIC ASX AUD AUM B BEAR bps CCIV CEO CLO CMBS Australian Prudential Regulatory Authority Audit, Risk and Compliance Committee Australian Securities and Investments Commission Australian Securities Exchange Australian dollars Assets under management Billion Banking Executive Accountability Regime Basis point (0.01%) Collective Corporate Investment Vehicles Chief executive officer Collateralised Loan Obligation Commercial mortgage backed securities COVID-19 Coronavirus disease cps DPS DRP EBIT EBITDA EMCF EPS ESG ESMA FAR FCA FTE FUA Group GBP HKD HNW IFPR IFRS IIP Cents per share Dividend(s) per share Dividend Reinvestment Plan Earnings before interest and tax Earnings before interest, tax, depreciation and amortisation of intangible assets, equity remuneration expense, and significant items Perpetual Exact Market Cash Fund Earnings per share Environmental, Social and Governance European Securities and Markets Authority Financial Accountability Regime Financial Conduct Authority Full time equivalent employee Funds under advice (for Perpetual Private) or funds under administration (for Perpetual Corporate Trust) Perpetual Limited and its controlled entities (the consolidated entity) and the consolidated entity’s interests in associates British pounds Hong Kong dollars High net worth Investment Firms Prudential Regime International Financial Reporting Standards Investing in Product – portfolio managers can invest deferred incentives into units in their own funds, aligning deferred remuneration to client outcomes Operating and Financial Reviewfor the 12 months ended 30 June 2022Perpetual Annual Report 2022103 IT KPI M MAS NM NPBT NPAT NTA N/A OFR PAMA PAMI PCT PP RAS RBA RMBS RMF ROE RSE SFDR SGD SREIT UK UPAT UPBT US USD Information technology Key performance indicator Million Monetary Authority of Singapore Not meaningful Net profit before tax Net profit after tax Net tangible asset Not applicable Operating and Financial Review Perpetual Asset Management Australia Perpetual Asset Management International Perpetual Corporate Trust Perpetual Private Risk Appetite Statement Reserve Bank of Australia Residential mortgage backed securities Risk Management Framework Return on equity Registrable Superannuation Entity Sustainable Finance Action Plan and Sustainable Disclosure Regulation Singapore dollars Singapore real estate investment trust United Kingdom Underlying profit after tax Underlying profit before tax United States United States dollars WH&S Work health and safety Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report104 Financial Report Financial Statements of Perpetual Limited and its Controlled Entities for the year ended 30 June 2022 Table of contents Primary statements Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Section 1 Group performance 1-1 Operating segments 1-2 Revenue 1-3 Expenses 1-4 Income taxes 1-5 Earnings per share 1-6 Dividends 1-7 Net cash from operating activities Section 2 Operating assets and liabilities 2-1 Business combinations 2-2 Receivables 2-3 Other financial assets 2-4 Property, plant and equipment 2-5 Intangibles 2-6 Provisions 2-7 Employee benefits 2-8 Lease liabilities 2-9 Accrued incentive compensation Section 3 Capital management and financing 3-1 Cash and cash equivalents 3-2 Borrowings 3-3 Contributed equity 3-4 Reserves 3-5 Commitments and contingencies Section 4 Risk management 4-1 Financial risk management Section 5 Other disclosures 5-1 Structured products assets and liabilities 5-2 Parent entity disclosures 5-3 Controlled entities 5-4 Deed of cross guarantee 5-5 Unconsolidated structured entities 5-6 Share-based payments 5-7 Key management personnel and related parties 5-8 Auditor’s remuneration 5-9 Subsequent events Section 6 Basis of preparation 6-1 Reporting entity 6-2 Basis of preparation 6-3 Other significant accounting policies 6-4 Changes in significant accounting policies 6-5 New standards and interpretations not yet adopted 109 109 112 113 114 117 118 119 120 120 120 121 122 123 125 126 127 127 128 128 128 129 130 130 Directors’ declaration Independent auditor’s report to the shareholders of Perpetual Limited Additional information Securities exchange and investor information 105 106 107 108 131 131 140 140 142 143 146 148 148 151 152 153 154 154 154 157 159 161 162 163 170 Perpetual Annual Report 2022Financial Report Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2022 Revenue Expenses Financing costs Net profit before tax Income tax expense Net profit after tax Other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences Other comprehensive income, net of income tax Total comprehensive income Total comprehensive income attributable to: Equity holders of Perpetual Limited Earnings per share1 Basic earnings per share – cents per share Diluted earnings per share – cents per share 105 20211 $M 652.1 (538.2) (10.1) 103.8 (30.9) 72.9 (19.1) (19.1) 53.8 SECTION 1-2 1-3 1-4 2022 $M 749.6 (603.1) (9.2) 137.3 (36.1) 101.2 32.2 32.2 133.4 133.4 53.8 1-5 1-5 179.6 176.5 131.4 129.6 1. Prior year comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the ‘Notes to and forming part of the financial statements’ set out on pages 109 to 161. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report106 Financial Report Consolidated Statement of Financial Position as at 30 June 2022 Assets Cash and cash equivalents Receivables Current tax assets Structured products – EMCF assets Other assets Total current assets Other financial assets Property, plant and equipment Intangibles Deferred tax assets Other assets Total non-current assets Total assets Liabilities Payables Structured products – EMCF liabilities Current tax liabilities Employee benefits Lease liabilities Provisions Other liabilities Total current liabilities Payables Borrowings Deferred tax liabilities Employee benefits Accrued incentive compensation Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity attributable to equity holders of Perpetual Limited SECTION 2022 $M 20211 $M 3-1 2-2 1-4 5-1 2-3 2-4 2-5 1-4 5-1 1-4 2-7 2-8 2-6 3-2 1-4 2-7 2-9 2-8 2-6 3-3 3-4 175.4 122.9 3.6 186.3 10.2 498.4 152.0 77.8 951.7 53.6 13.0 1,248.1 1,746.5 54.0 187.7 – 90.1 16.4 5.8 15.2 369.2 39.7 258.4 14.9 29.3 48.6 55.9 4.7 451.5 820.7 925.8 817.7 34.3 73.8 925.8 147.1 132.7 – 163.9 13.7 457.4 150.4 91.1 862.9 47.2 7.9 1,159.5 1,616.9 73.0 163.3 7.6 91.2 13.1 1.6 11.4 361.2 17.7 166.0 15.6 26.4 48.0 70.1 4.8 348.6 709.8 907.1 815.3 2.5 89.3 907.1 1. Prior year comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. The Consolidated Statement of Financial Position is to be read in conjunction with the ‘Notes to and forming part of the financial statements’ set out on pages 109 to 161. Perpetual Annual Report 2022Financial Report Consolidated Statement of Changes in Equity for the year ended 30 June 2022 $M GROSS CONTRIBUTED EQUITY TREASURY SHARE RESERVE EQUITY COMPENSATION RESERVE FOREIGN CURRENCY TRANSLATION RESERVES RETAINED EARNINGS Balance at 1 July 2021 854.6 (39.3) Total comprehensive income/(expense) Movement on treasury shares Issue of ordinary shares Repurchase of shares on market Equity remuneration expense Dividends paid to shareholders – (1.8) 5.3 – – – – 14.6 – (15.7) – – Balance at 30 June 2022 858.1 (40.4) 21.3 – (13.8) – – 13.4 – 20.9 (18.8) 32.2 – – – – – 13.4 89.3 101.2 1.0 – – – (117.7) 73.8 $M GROSS CONTRIBUTED EQUITY TREASURY SHARE RESERVE EQUITY COMPENSATION RESERVE FOREIGN CURRENCY TRANSLATION RESERVES RETAINED EARNINGS Balance at 1 July 2020 582.1 (42.3) Impact of change in accounting policy1 Total comprehensive income/(expense) Movement on treasury shares Issue of ordinary shares Transaction costs Repurchase of shares on market Equity remuneration expense Dividends paid to shareholders – – (0.9) 278.4 (5.0) – – – – – 10.6 – – (7.6) – – Balance at 30 June 2021 854.6 (39.3) 19.1 – – (10.1) – – – 12.3 – 21.3 0.3 – (19.1) – – – – – – (18.8) 95.2 (3.5) 72.9 0.4 – – – – (75.7) 89.3 107 TOTAL EQUITY ATTRIBUTABLE TO SHARE- HOLDERS OF PERPETUAL LIMITED 907.1 133.4 – 5.3 (15.7) 13.4 (117.7) 925.8 TOTAL EQUITY ATTRIBUTABLE TO SHARE- HOLDERS OF PERPETUAL LIMITED 654.4 (3.5) 53.8 – 278.4 (5.0) (7.6) 12.3 (75.7) 907.1 1. Opening retained earnings has been adjusted for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. The Consolidated Statement of Changes in Equity is to be read in conjunction with the ‘Notes to and forming part of the financial statements’ set out on pages 109 to 161. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 108 Financial Report Consolidated Statement of Cash Flows for the year ended 30 June 2022 Cash flows from operating activities Cash receipts in the course of operations Cash payments in the course of operations Dividends received Interest received Interest paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payments for property, plant, equipment and software Payments for investments Payment for acquisition of a business Cash acquired as part of acquisition of business Proceeds from sale of investments Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Transaction costs related to issue of shares Transaction costs related to borrowings Lease financing costs Receipt from borrowings Repurchase of shares on market Dividends paid Net cash (used in)/from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 July Effect of movements in exchange rates on cash held SECTION 2022 $M 20211 $M 1-7 834.1 (596.4) 0.5 0.4 (8.2) (59.6) 170.8 (15.0) (43.1) (49.8) 3.5 35.2 669.9 (501.4) 0.1 0.7 (6.1) (42.6) 120.6 (13.7) (97.3) (431.0) 2.0 61.1 (69.2) (478.9) – – – (14.4) 75.0 (14.8) (112.4) (66.6) 35.0 147.1 (6.7) 275.1 (5.0) (5.4) (15.2) 174.6 (7.6) (72.4) 344.1 (14.2) 164.1 (2.8) 147.1 Cash and cash equivalents at 30 June 3-1 175.4 1. Prior year comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. The Consolidated Statement of Cash Flows is to be read in conjunction with the ‘Notes to and forming part of the financial statements’ set out on pages 109 to 161. Perpetual Annual Report 2022 Notes to and forming part of the financial statements for the year ended 30 June 2022 109 Section 1 Group performance This section focuses on the results and performance of Perpetual as a consolidated entity. On the following pages you will find disclosures explaining Perpetual’s results for the year, segmental information, taxation, earnings per share and dividend information. Where an accounting policy is specific to a single note, the policy is described in the section to which it relates. 1-1 Operating segments An operating segment is a component of the consolidated entity that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the consolidated entity’s other components and for which discrete financial information is available. All operating segments’ operating results are regularly reviewed by the consolidated entity’s CEO to make decisions about resources to be allocated to the segment and assess their performance. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, income tax expenses, assets and liabilities. The following summary describes the operations in each of the reportable segments: i. Services provided Perpetual is a global financial services firm operating in Australia, United States, United Kingdom, the Netherlands, Singapore and Hong Kong. Perpetual provides a diverse range of financial products and services including asset management, financial advisory and trustee services via its four business segments, supported by Group Support Services. Perpetual Asset Management International Provides investment products and services to global retail and institutional clients, including a distribution presence in the United States, United Kingdom, the Netherlands and Hong Kong. Investment management firm, Barrow Hanley Global Investors (Barrow Hanley), and boutique ESG investment management firm, Trillium Asset Management (Trillium), form part of this operating segment to offer a breadth of high-quality global investment capabilities to our clients. Perpetual Asset Management Australia Provides investment products and services to Australian and New Zealand retail, corporate, superannuation and institutional clients, with investment capabilities spanning Australian equities, credit and fixed income, multi-asset and global equities. Perpetual Private Perpetual Corporate Trust Is an advisory services business focused on the comprehensive needs of families, businesses and communities. Support for clients spreads across financial advice, risk, estate administration, trustee services and tax and accounting as well as portfolio management. The business is focused on client service excellence and attracting and retaining exceptional talent to meet those standards in our chosen segments. Provides a broad range of fiduciary, agency and digital products to the debt capital markets and managed funds industries both domestically and internationally. Debt Market Services includes trustee, document custodian, agency, trust management, accounting, standby servicing and reporting solutions. Perpetual Digital provides data services, industry roundtables, and our new Perpetual Intelligence platform-as-a-service products supporting the banking and financial services industry. Managed Funds Services provides services including independent responsible entity, wholesale trustee, custodian, investment management and accounting. Group Support Services The business units are supported by Group Support Services comprising Group Investments, CEO, Finance, Corporate Affairs, Marketing, Legal, Audit, Risk, Compliance, Company Secretary, Technology, Project & Change Management, Operations, Product and People & Culture. ii. Geographical information The consolidated entity operates in Australia, United States, United Kingdom, the Netherlands, Singapore and Hong Kong. The majority of the consolidated entity’s revenue and assets relate to operations in Australia and the United States. The Australian operations are represented by Perpetual Asset Management Australia, Perpetual Private and Perpetual Corporate Trust. The United States operations are represented by Perpetual Asset Management International. The operations in the United Kingdom, the Netherlands, Singapore and Hong Kong do not meet the definition of an operating segment as at balance date, as they represent less than 10 percent of revenue, profit and assets of the Group. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report110 1-1 Operating segments continued iii. Major customer The consolidated entity does not rely on any major customer. PERPETUAL ASSET MANAGEMENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA1 $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M TOTAL REPORTABLE SEGMENT $M GROUP SUPPORT SERVICES $M SIGNIFICANT ITEMS $M CONSOLIDATED INCOME STATEMENT $M 30 June 2022 Major service lines Equities Cash and fixed income Other AUM related Market related Non-market related Income from structured products Debt Market Services Managed Funds Services Perpetual Digital Investment income Net gain on sale of investments 198.7 20.1 0.1 – – – – – – – – 131.7 32.7 3.3 – – 1.4 – – – – – Unrealised gains/(losses) on financial assets Total revenue (0.1) 218.8 (1.9) 167.2 Operating expenses (162.6) (108.8) – – – 153.0 55.2 – – – – 3.0 – – – – – – – – 68.7 70.3 19.5 – – – 211.2 (151.5) 158.5 (75.4) 330.4 52.8 3.4 153.0 55.2 1.4 68.7 70.3 19.5 3.0 – (2.0) 755.7 (498.3) – – – – – – – – – 12.4 4.6 (6.8) 10.2 (21.0) – – – – – – – – – – (1.2) (15.1) (16.3) (17.7) 330.4 52.8 3.4 153.0 55.2 1.4 68.7 70.3 19.5 15.4 3.4 (23.9) 749.6 (537.0) Depreciation and amortisation Equity remuneration amortisation Financing costs Profit/(loss) before tax Income tax expense Net profit after tax Reportable segment assets Reportable segment liabilities (2.3) (5.5) (9.3) (8.0) (25.1) (2.1) (25.5) (52.7) (0.4) (0.6) 52.9 (4.8) (0.1) 48.0 (4.0) (2.1) 44.3 (1.8) (0.7) 72.6 (11.0) (3.5) 217.8 (0.1) (5.5) (18.5) (2.3) (0.2) (62.0) 693.7 229.1 252.8 246.6 1,422.2 324.3 (129.8) (214.3) (44.0) (22.9) (411.0) (409.7) (13.4) (9.2) 137.3 (36.1) 101.2 1,746.5 (820.7) 16.6 Capital expenditure 0.1 2.8 0.1 6.0 9.0 7.6 1. Segment information for Perpetual Asset Management Australia includes the Perpetual Exact Market Return Fund, refer to Section 5-1(i). Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022111 PERPETUAL ASSET MANAGEMENT INTER- NATIONAL $M PERPETUAL ASSET MANAGE- MENT AUSTRALIA1 $M PERPETUAL PRIVATE $M PERPETUAL CORPORATE TRUST $M TOTAL REPORTABLE SEGMENT $M GROUP SUPPORT SERVICES $M SIGNIFICANT ITEMS $M CONSOLIDATED INCOME STATEMENT $M 122.2 16.6 0.3 132.5 28.2 3.4 – – – – – – – – 139.1 (95.8) – – 1.8 – – – – 0.9 166.8 (112.7) – – – 126.7 57.1 – – – – – – – – – – – – 62.4 59.6 12.6 0.2 – – 254.7 44.8 3.7 126.7 57.1 1.8 62.4 59.6 12.6 0.2 – 0.9 183.8 (134.2) 134.8 (60.8) 624.5 (403.5) – – – – – – – – – 9.0 4.0 4.3 17.3 – – – – – – – – – – – 10.3 10.3 254.7 44.8 3.7 126.7 57.1 1.8 62.4 59.6 12.6 9.2 4.0 15.5 652.1 (23.3) (55.4) (482.2) (1.7) (5.3) (10.5) (8.6) (26.1) (1.7) (15.9) (43.7) (0.4) (0.6) 40.6 (5.7) (0.1) 43.0 (3.5) (0.6) 35.0 (1.2) (0.4) 63.8 (10.8) (1.7) 182.4 (0.7) (3.9) (12.3) (0.8) (4.5) (66.3) 627.5 208.0 234.7 205.1 1,275.3 341.6 (12.3) (10.1) 103.8 (30.9) 72.9 1,616.9 (709.8) 23.5 30 June 2021 Major service lines Equities Cash and fixed income Other AUM related Market related Non-market related Income from structured products Debt Market Services Managed Funds Services Perpetual Digital Investment income Net gain on sale of investments Unrealised gains/(losses) on financial assets Total revenue Operating expenses Depreciation and amortisation Equity remuneration amortisations Financing costs Profit/(loss) before tax Income tax expense Net profit after tax Reportable segment assets Reportable segment liabilities Capital expenditure – 5.2 (144.9) (190.6) (19.1) 0.1 (11.1) 4.7 (365.7) (344.1) 10.0 13.5 1. Segment information for Perpetual Asset Management Australia includes the Perpetual Exact Market Return Fund, refer to Section 5-1(i). Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 112 1-2 Revenue Revenue from contracts with customers Income from structured products Dividends Interest and unit trust distributions Net realised gains on sale of investments Unrealised (losses)/gains on financial assets Other Accounting policies 2022 $M 753.3 1.4 0.6 5.4 3.4 (23.9) 9.4 749.6 2021 $M 621.6 1.8 0.1 9.1 4.0 15.5 – 652.1 Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The consolidated entity recognises revenue when it transfers control over a product or service to a customer. Revenue from contracts with customers The consolidated entity earns revenue from the provision of financial products and services. These include investment management and administration, financial advisory and trustee services (including responsible entity, superannuation, philanthropic and estate administration). The majority of the consolidated entity’s revenue arises from service contracts where performance obligations are satisfied over time. Customers obtain control of services as they are delivered, and revenue is recognised over time as those services are provided. Investment management and administration revenue is calculated as a percentage of the funds invested in accordance with the investment mandates or the respective product disclosure statements. Some investment products and mandates include performance fees, which are contingent on achieving or exceeding a defined performance hurdle and the revenue is recognised when it is highly probable that a significant reversal in the cumulative amount of the revenue would not occur. While performance fees are recognised over time, they are typically constrained until meeting or exceeding the performance hurdle due to market volatility. Revenue from financial advisory services is assessed on a contract by contract basis. Revenue is recognised over the period the services are provided. Revenue may be charged on a fixed fee, fee for service (`time and costs’) or as a percentage of assets under administration basis: – Under fixed fee contracts, revenue is recognised as the related services are provided on a percentage of completion basis, or when specified milestones in the contract have been achieved. Fees received in advance are deferred as a contract liability until the service has been provided. – Revenue charged under fee for service contracts is recognised based on the amount the consolidated entity is entitled to invoice for services performed to date, based on the contracted rates. Trustee Services are also assessed on a contract by contract basis. Contracts may include a fee to establish a trust, as well as ongoing trustee and other service fees. Establishment fees are recognised when the trust has been established and is based on the standalone value of the service. A small part of the consolidated entity’s revenue is recognised at a point in time, generally when a performance obligation is linked to a particular event (i.e. an application or redemption transaction for a customer). Revenue is recognised when the consolidated entity executes a specific transaction on behalf of the customer. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022113 Income from structured products Income represents fees earned from managing the Exact Market Cash Funds. Dividends Dividend income is recognised in profit or loss on the date the consolidated entity’s right to receive payment is established which, in the case of quoted securities, is the ex-dividend date. Interest and unit trust distributions Interest income is recognised as it accrues, taking into account the effective yield of the financial asset. Unit trust distributions are recognised in profit or loss as they are received. Net realised gains on sale of investments Net gain on sale of investments represents proceeds less costs on sale of financial assets. Unrealised gains on financial assets Represents movement in the fair value of the consolidated entity’s financial assets classified as Fair Value Through Profit and Loss (FVTPL) during the financial year. 1-3 Expenses Staff related expenses excluding equity remuneration expense Occupancy expenses Administrative and general expenses Distributions and expenses relating to structured products Equity remuneration expense Depreciation and amortisation expense 2022 $M 367.8 6.4 162.6 0.2 13.4 52.7 20211 $M 329.7 7.1 145.1 0.3 12.3 43.7 603.1 538.2 1. Prior year comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. Accounting policies Expenses are recognised at the fair value of the consideration paid or payable when services are received. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report114 1-4 Income taxes Current year tax expense Current year tax expense Prior year adjustments Total current tax expense impacting income taxes payable Deferred tax expense Prior year adjustments Temporary differences Total deferred tax expense Total income tax expenses Net profit before tax for the year ‘Prima facie income tax expense calculated at 30% (2021: 30%) on profit for the year’ – Recognition of previously unrecognised capital and revenue losses – Non-assessable income – Prior year adjustments – Effect of tax rates in foreign jurisdictions – Other non-deductible expenses Total Effective tax rate (ETR) Income taxes payable at the beginning of the year Income taxes payable for the financial year Less: Tax paid during the year Other Income taxes (receivable)/payable at the end of the year Represented in the Statement of Financial Position by: Current tax (assets)/liabilities 2022 $M 48.1 0.8 48.9 (0.8) (12.0) (12.8) 36.1 137.3 41.2 (2.5) (2.8) – (1.7) 1.9 36.1 26.3% 7.6 48.9 (59.6) (0.5) (3.6) 20211 $M 38.5 (2.4) 36.1 3.4 (8.6) (5.2) 30.9 103.8 31.1 (2.5) – 1.0 0.7 0.6 30.9 29.8% 13.3 37.0 (42.6) (0.1) 7.6 (3.6) 7.6 1. Prior year comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022 115 Basis of calculation of effective tax rate The ETR is calculated as total income tax expenses divided by net profit before tax for the year. The consolidated entity currently has tax obligations in Australia, United States, Singapore, the Netherlands, the United Kingdom (UK) and Hong Kong. Operations in Singapore, the Netherlands, the UK and Hong Kong do not materially impact the calculation of the ETR. Explanation of variance to the legislated 30% tax rate The consolidated entity’s ETR for the year was 26.3% (2021: 29.8%). The decrease of 3.7% in the effective tax rate compared to the legislated 30% is mainly attributed to the availability of carry-forward capital losses, which offset the realised capital gains received on trust distribution income, and the inclusion in accounting income during the year of an adjustment to the deferred consideration of an acquisition in a previous year which does not constitute assessable income for tax purposes. It is also impacted by lower tax rates applicable to non-Australian jurisdictions. This reduction in income tax expense and ETR is partially reversed by the upward impact of non-deductible expenses. Capital tax (gains)/losses calculated at 30% tax in Australia The total tax benefits of realised capital losses are $21,327,854 (30 June 2021: $24,030,718 comprising $3,000,000 (30 June 2021: $3,000,000) recognised in deferred tax assets and $18,327,854 (30 June 2021: $21,030,718) not recognised in deferred tax assets. These are net of realised tax capital gains and losses incurred in the current and/or prior year and are available to be utilised by the Australian income tax consolidated group in future years. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 116 1-4 Income taxes continued Movement in deferred tax balances 2022 Deferred tax assets Provisions and accruals Capital expenditure deductible over five years Employee benefits Property, plant and equipment Intangible assets Recognised capital losses Unrealised net capital losses Lease adjustments AASB 16 Other items Deferred tax assets Deferred tax liabilities Intangible assets Lease adjustment AASB 16 Unrealised net capital gains Capital raising costs Other items Deferred tax liabilities Net deferred tax assets 2021 Deferred tax assets Provisions and accruals Capital expenditure deductible over five years Employee benefits Property, plant and equipment Recognised revenue losses Recognised capital losses Lease adjustments AASB 16 Other items Deferred tax assets Deferred tax liabilities Intangible assets Unrealised net capital gains Capital raising costs Other items Deferred tax liabilities Net deferred tax assets BALANCE 1 JULY 2021 $M RECOGNISED IN PROFIT OR LOSS $M ACQUIRED IN BUSINESS COMBINATION $M BALANCE 30 JUNE 2022 $M 4.7 0.2 29.1 2.4 3.7 3.0 – 4.1 – 47.2 (6.8) – (6.1) (2.4) (0.3) (15.6) 31.6 1.5 – 0.7 0.8 (0.2) – 1.0 0.3 2.1 6.2 0.8 (0.5) 6.1 0.3 (0.1) 6.6 12.8 – – 0.1 – – – – 0.1 – 0.2 (5.9) – – – – (5.9) (5.7) 6.2 0.2 29.9 3.2 3.5 3.0 1.0 4.5 2.1 53.6 (11.9) (0.5) – (2.1) (0.4) (14.9) 38.7 BALANCE 1 JULY 2020 $M RECOGNISED IN PROFIT OR LOSS $M ACQUIRED IN BUSINESS COMBINATION $M BALANCE 30 JUNE 2021 $M 6.4 1.2 21.3 2.2 – 3.0 5.3 0.6 40.0 (13.9) (0.3) (2.7) (0.5) (17.4) 22.6 (1.7) (1.2) 6.2 0.2 3.7 – (0.8) (0.7) 5.7 7.1 (5.8) 0.3 0.2 1.8 7.5 – 0.2 1.6 – – – (0.4) 0.1 1.5 – – – – – 1.5 4.7 0.2 29.1 2.4 3.7 3.0 4.1 – 47.2 (6.8) (6.1) (2.4) (0.3) (15.6) 31.6 Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022117 Accounting policies Income tax expense comprises current and deferred tax. Income tax expense is recognised in the net profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at reporting date and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: – the initial recognition of goodwill – the initial recognition of assets or liabilities that affect neither accounting nor taxable profit – differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each balance date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are netted when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. Perpetual Limited and its wholly owned Australian entities elected to form an income tax consolidated group as of 1 July 2002. As a consequence, all members of the tax consolidated group are taxed as a single entity and governed by a tax funding agreement. Under the agreement, all wholly owned Australian entities fully compensate Perpetual Limited for any current income tax payable assumed and are compensated by Perpetual Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Perpetual Limited under the income tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the members’ financial statements. 1-5 Earnings per share Basic earnings per share Diluted earnings per share Net profit after tax attributable to equity holders of Perpetual Limited CENTS PER SHARE1 2022 179.6 176.5 $M 101.2 2021 131.4 129.6 $M 72.9 1. Prior period comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. Weighted average number of ordinary shares (basic) Effect of dilutive potential ordinary shares (including those subject to rights) Weighted average number of ordinary shares (diluted) NUMBER OF SHARES 56,356,663 55,458,177 990,317 768,479 57,346,980 56,226,656 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 118 1-5 Earnings per share continued Accounting policies The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the net profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for shares held by the Company’s employee share plan trust. Diluted EPS is determined by dividing the net profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, adjusted for shares held by the Company’s sponsored employee share plan trust and for the effects of all dilutive potential ordinary shares, which comprise shares and options/rights granted to employees under long-term incentive and retention plans. 1-6 Dividends 2022 Final 2021 ordinary Interim 2022 ordinary Total amount 2021 Final 2020 ordinary Interim 2021 ordinary Total amount CENTS PER SHARE TOTAL AMOUNT $M FRANKED/ UNFRANKED DATE OF PAYMENT 96 112 208 50 84 134 Franked 24 Sep 2021 Franked 01 Apr 2022 Franked 25 Sep 2020 Franked 26 Mar 2021 54.3 63.4 117.7 28.2 47.5 75.7 All franked dividends declared or paid during the year were franked at a tax rate of 30% and paid out of retained earnings. The Company’s Dividend Reinvestment Plan (DRP) is optional and offers ordinary shareholders in Australia and New Zealand the opportunity to acquire fully paid ordinary shares, without transaction costs. Shareholders can elect to participate in or terminate their involvement in the DRP at any time. Subsequent events Since the end of the financial year, the Directors declared the following dividend. The dividend has not been provided for and there are no tax consequences. Final 2022 ordinary 1. Calculation based on the estimated ordinary shares on issue at the record date. CENTS PER SHARE TOTAL AMOUNT 1 $M FRANKED/ UNFRANKED DATE OF PAYMENT 97 55.0 Franked 30 Sep 2022 The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2022 and will be recognised in subsequent financial reports. DIVIDEND FRANKING ACCOUNT Amount of franking credits available to shareholders for subsequent financial years 2022 $M 27.8 2021 $M 37.9 The above available amounts are based on the balance of the dividend franking account at 30 June 2022 adjusted for franking credits that will arise from the payment of the current tax liabilities, and franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the year end. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022 119 The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after the balance date, but not recognised as a liability, is to reduce it to $4,200,000 (2021: $14,638,000). Accounting policies Dividends are recognised as a liability in the year in which they are declared. 1-7 Net cash from operating activities Reconciliation of profit for the year to net cash from operating activities Profit for the year Items classified as investing/financing activities: Profit on sale of investments Deferred acquisition consideration Assets acquired from business combinations Lease financing costs Non-cash items: Depreciation and amortisation expense Equity remuneration expense Transfer to foreign currency translation reserve Reinvestment of dividends and unit distributions Accrued fixed asset additions Mark to market movements on financial assets Fair value adjustment to put liability Other (Increase)/decrease in assets Receivables Current tax assets Other assets Deferred tax assets Increase/(decrease) in liabilities Payables Provisions Current tax liabilities Deferred tax liabilities Employee benefits 2022 $M 20211 $M 101.2 72.9 (3.4) 16.1 3.5 14.4 52.7 13.4 (32.2) (4.0) (1.5) 23.9 (4.7) (7.4) 9.8 (3.6) (1.6) (6.4) 3.0 4.1 (7.6) (0.7) 1.8 (4.0) (20.9) 2.0 15.1 43.7 12.3 19.1 (4.4) (1.6) (15.5) 10.7 (3.3) (40.7) – 0.4 (7.2) 0.5 (2.5) (5.7) (1.8) 51.5 Net cash from operating activities 170.8 120.6 1. Prior year comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report120 Section 2 Operating assets and liabilities This section shows the assets used to generate Perpetual’s trading performance and the liabilities incurred as a result. Liabilities relating to the consolidated entity’s financing activities are addressed in Section 3. 2-1 Business combinations The purchase consideration (at present value) for the two acquisitions below totalled approximately $52 million. Laminar Capital Pty Ltd On 1 October 2021, Perpetual acquired Laminar Capital Pty Ltd (Laminar), a fixed income specialist providing capital markets, advisory and investment management services to institutional, middle market and high net worth clients. This strategic acquisition accelerates Perpetual Corporate Trust’s position as a specialist fiduciary and digital solutions provider to the banking and financial services industry. Whilst this was a strategic acquisition, it was not material to the Group’s assets or results. Jacaranda Financial Planning Pty Ltd On 12 August 2021, Perpetual acquired Jacaranda Financial Planning Pty Ltd (Jacaranda), a leading Sydney and Melbourne-based boutique wealth advisory firm focused on the high net worth market segment. This strategic acquisition accelerates Perpetual Private’s adviser growth strategy and complements its existing private client and family office offering. While this was a strategic acquisition, it was not material to the Group’s assets or results. 2-2 Receivables Current Trade receivables Less: Provision for doubtful debts Other receivables Movements in the provision for doubtful debts are as follows: Balance as at beginning of the year Doubtful debts provided for during the year Receivables written off during the year as uncollectible Balance as at end of the year 2022 $M 2021 $M 120.4 (3.0) 117.4 5.5 122.9 3.1 1.7 (1.8) 3.0 117.2 (3.1) 114.1 18.6 132.7 1.2 2.4 (0.5) 3.1 Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022121 Movements in the provision for doubtful debts have been recognised in Administrative and general expenses in Section 1-3. Amounts charged to the provision account are generally written off when there is no expectation of additional recoveries. In subsequent periods, any recoveries of amounts previously written off are credited against Administrative and general expenses in Section 1-3. Based on the analysis at the end of the reporting period, the impairment under the expected credit loss (ECL) method is considered to be immaterial and currently no amount is recognised in the financial statements. Accounting policies Receivables comprise trade and other receivables. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for ECL. Collectability of trade receivables is reviewed on an ongoing basis and at balance date, in addition to the ECL, specific impairment losses are recorded for any doubtful debts. 2-3 Other financial assets Non-current Listed equity securities Unlisted unit trusts Debt securities Unlisted investment funds Accounting policies Financial assets 2022 $M 50.2 89.8 3.4 8.6 152.0 2021 $M 26.2 120.2 4.0 – 150.4 The consolidated entity’s investments in equity securities, unlisted unit trusts, unlisted investment funds and debt securities are classified at Fair Value Through Profit and Loss (FVTPL) with the associated realised and unrealised gains and losses taken to the Income Statement. Refer to Section 4-1 (iv). Fair values for investments in equity securities, unlisted unit trusts and other securities are obtained from quoted market prices in active markets, including market transactions and valuation techniques (such as discounted cash flow models and option pricing models), as appropriate. Unlisted investment funds represent an equity interest in an unlisted investment fund established to invest its assets primarily in the economic equity interests of multiple collateralised loan obligation (CLO) transactions and warehouse facilities in connection therewith. Fair values for unlisted investment funds are obtained from an independent, third-party fund administrator and are based on the net asset value of the fund at the reporting date. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 122 2-4 Property, plant and equipment Year ended 30 June 2022 Cost Foreign exchange movement Accumulated depreciation Carrying amount Movement Balance as at 1 July 2021 Additions Additions through business combinations Transfers from work in progress Depreciation Foreign exchange movement Balance as at 30 June 2022 Accounting policies Recognition and measurement PLANT AND EQUIPMENT $M LEASEHOLD IMPROVEMENTS $M ROU ASSETS $M PROJECT WORK IN PROGRESS $M 11.3 (0.1) (9.7) 1.5 1.6 0.5 – – (0.7) 0.1 1.5 61.3 – (43.7) 17.6 21.4 – – 0.6 (4.4) – 17.6 91.4 0.9 (33.7) 58.6 67.6 0.2 1.1 – (12.1) 1.8 58.6 0.1 – – 0.1 0.5 0.2 – (0.6) – – 0.1 TOTAL $M 164.1 0.8 (87.1) 77.8 91.1 0.9 1.1 – (17.2) 1.9 77.8 Property, plant and equipment are measured at cost or deemed cost less accumulated depreciation and impairment losses. Right-of-use assets represents leased office premises and are initially measured at cost, and subsequently measured at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Project work in progress Work in progress is measured at cost and relates to assets not yet available for use. Depreciation Depreciation is recognised on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Depreciation for right-of-use assets is recognised on a straight-line basis over the shorter of the asset’s useful life and the lease term. The estimated useful lives for the current and comparative periods are as follows: – plant and equipment: 4 – 15 years – leasehold improvements: 3 – 15 years – right-of-use assets: 9 – 20 years. The residual value, useful life and depreciation method applied to an asset are reassessed at least annually. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 20222-5 Intangibles $M Year ended 30 June 2022 At cost Foreign exchange movement Accumulated amortisation Carrying amount Balance at 1 July 2021 Additions Additions through business combinations Transfers Foreign exchange movement Amortisation expense Balance as at 30 June 2022 Year ended 30 June 2021 At cost Foreign exchange movement Accumulated amortisation Carrying amount Balance at 1 July 2020 Impact of change in accounting policy Additions 123 GOODWILL INTANGIBLE ASSETS CUSTOMER CONTRACTS CAPITALISED SOFTWARE1 PROJECT WORK IN PROGRESS1 OTHER TOTAL 601.8 14.9 – 616.7 554.5 – 39.5 – 22.7 – 616.7 562.3 (7.8) – 554.5 361.3 – – 313.1 12.2 (83.5) 241.8 224.3 – 19.7 – 19.3 (21.5) 241.8 293.4 (7.1) (62.0) 224.3 40.9 – – 94.5 0.3 (73.5) 21.3 19.2 – 1.1 10.1 0.3 (9.4) 21.3 83.3 – (64.1) 19.2 21.8 (5.3) 0.4 0.2 12.3 – (10.2) 19.2 25.4 – – 25.4 17.3 18.2 – (10.1) – – 25.4 17.3 – – 17.3 12.1 (2.5) 20.0 – (12.3) – – 17.3 54.5 2.5 (10.5) 46.5 47.6 – – – 4.1 (5.2) 46.5 54.5 (1.6) (5.3) 47.6 8.3 – – 44.5 – (1.6) (3.6) 47.6 1,089.3 29.9 (167.5) 951.7 862.9 18.2 60.3 – 46.4 (36.1) 951.7 1,010.8 (16.5) (131.4) 862.9 444.4 (7.8) 20.4 451.2 – (16.5) (28.8) 862.9 Additions through business combinations 201.0 205.5 Transfers Foreign exchange movement Amortisation expense Balance as at 30 June 2021 – (7.8) – 554.5 – (7.1) (15.0) 224.3 1. Prior year comparatives have been restated for the change in accounting policy relating to Software-as-a-Service (SaaS) arrangements. Refer to Section 6-4(a) for further details. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report124 2-5 Intangibles continued Goodwill Impairment Testing The following cash-generating units have significant carrying amounts of goodwill: Perpetual Asset Management International, comprising CGUs: – Trillium – Barrow Hanley Perpetual Asset Management Australia, comprising CGU: – Australian Equity Perpetual Private Perpetual Corporate Trust 2022 $M 2021 $M 50.0 214.3 3.5 190.2 158.7 616.7 45.9 195.7 3.5 168.4 141.0 554.5 The recoverable amount has been determined on a consistent basis across each cash-generating unit (CGU) by using their value in use. The following assumptions have been applied across each CGU: – The value in use is estimated based on the net present value of future cash flow projections to be realised from each of the CGUs over the next five years plus a terminal value. – The pre-tax discount rates used in the current year ranged from 14.0% to 15.9% (2021: 14.5% to 16.4%) for Australian CGUs and from 15.0% to 15.4% (2021: 15.6% to 16.1%) for US CGUs. The forecast cash flows used in impairment testing are based on assumptions as to the level of profitability for each business over a projected five-year period. These forecasted cash flows are based on a five-year forecast, three years of which has been approved by the Board and a further two years of management forecasts have been applied. The main drivers of revenue growth are the value of assets under management (AUM) in the Trillium, Barrow Hanley and Australian Equity CGUs, funds under advice (FUA) in the Perpetual Private CGU and securitisation and capital flows in the Perpetual Corporate Trust CGU. A terminal value with a growth rate of 2.5% has also been applied. Other than the normal operating changes linked to ongoing business initiatives, the assumptions do not include the effects of any future restructuring to which the consolidated entity is not yet committed or of future cash outflows by the consolidated entity which will improve or enhance the consolidated entity’s performance. At the reporting date, there is no reasonable change in key assumptions that could cause the carrying amount to exceed the recoverable amount. The estimated recoverable amount is greater than the carrying value for each CGU. For the estimated recoverable amount to be equal to the carrying amount, the pre-tax discount rate would have to increase from 14.0% to 26.4% (2021: 14.5% to 37.7%) for Australian CGUs and from 15.0% to 25.3% (2021: 15.6% to 16.6%) for US CGUs. Accounting policies Goodwill Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the consolidated entity’s share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill is allocated to cash-generating units and is not amortised, but tested for impairment annually. Goodwill is measured at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022125 Amortisation For those intangible assets which are amortised, the amortisation is calculated over the cost of the asset, or another amount substituted for cost, less its residual value. The estimated useful lives in the current and comparative periods are as follows: – capitalised software: 2.5 – 8 years – customer contracts and relationships acquired: 5 – 15 years – non-compete (included in other intangible assets): 3 – 5 years. Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. Software Certain internal and external costs directly incurred in acquiring and developing software have been capitalised and are amortised over their useful lives. Development costs include only those costs directly attributable to the development phase and are only recognised following completion of a technical feasibility study and where the consolidated entity has an intention and ability to use the asset. Costs incurred on software maintenance are expensed as incurred. Other intangible assets Brand names acquired by the consolidated entity are included in other intangible assets. Brand names have an indefinite useful life and are not amortised, but tested for impairment annually. Brand names are measured at cost less accumulated impairment losses. Other intangible assets acquired by the consolidated entity, which have finite useful lives, are stated at cost less accumulated amortisation and impairment losses. Subsequent expenditure Subsequent expenditure is capitalised only when it increases future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. 2-6 Provisions Current Insurance and legal provision Operational process review provision Make good and other occupancy related provisions Non-current Make good and other occupancy related provisions 2022 $M 1.8 3.6 0.4 5.8 4.7 4.7 2021 $M 0.3 0.2 1.1 1.6 4.8 4.8 $M Legal provision Operational process review provision Make good and other occupancy related provisions Total provisions CARRYING AMOUNT AT 1 JULY 2021 ADDITIONAL PROVISION MADE UNUSED AMOUNTS REVERSED PAYMENTS MADE CARRYING AMOUNT AT 30 JUNE 2022 0.3 0.2 5.9 6.4 1.7 5.1 0.4 7.2 – – (0.4) (0.4) (0.2) (1.7) (0.8) (2.7) 1.8 3.6 5.1 10.5 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 126 2-6 Provisions continued Accounting policies A provision is recognised in the Statement of Financial Position when the consolidated entity has a present legal or constructive obligation as a result of a past event that can be measured reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Management exercises judgement in estimating provision amounts. It may be possible, based on existing knowledge, that outcomes in the next annual reporting period differ from amounts provided and may require adjustment to the carrying amount of the liability affected. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. Legal provision A provision for litigation is recognised when reported litigation claims arise and are measured at the cost that the consolidated entity expects to incur in settling the claim (refer to Section 3-5). Operational process review A provision for operational process reviews is recognised when operational errors are identified and represents the cost that the consolidated entity expects to incur in rectification and restitution costs. Make good and other occupancy related provisions A provision for make good and other occupancy related provisions is recognised when certain make good conditions exist upon exit of a premises lease. The provision is expected to be settled at the end of the term of the related lease. 2-7 Employee benefits AGGREGATE LIABILITY FOR EMPLOYEE BENEFITS, INCLUDING ON-COSTS 2022 2021 $M Provision for annual leave Provision for long service leave Other employee benefits1 Provision for distribution – Barrow Hanley Provision for long-term incentive plans Restructuring provision 1. Short-term incentives (STI) and deferred STI. CURRENT NON-CURRENT CURRENT NON-CURRENT 8.1 8.7 70.6 2.6 – 0.1 90.1 – 2.5 9.9 – 16.9 – 29.3 5.2 8.1 75.0 2.8 – 0.1 91.2 – 2.8 10.9 – 12.7 – 26.4 The non-current portion of the long service leave provision has been discounted using a rate of 5.3% (2021: 2.7%) which is based on the 10 year corporate bond rate. The provision for long-term incentive plans has been discounted using a range of 3.0% to 3.1% (2021: 1.4% to 1.7%), which is based on the relevant US Treasury note rate that matches the expected payment term. The number of full time equivalent employees at 30 June 2022 was 1,370 (2021: 1,166). Accounting policies Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the consolidated entity has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022127 Other long-term employee benefits The consolidated entity’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. Restructuring A provision for restructuring is recognised when the consolidated entity has approved a detailed and formal restructuring plan and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for. Provision for long-term incentive plans The provision for long-term incentive plans relates to schemes operated by Barrow Hanley. The liability is not dependent on estimate. The liability is dependent on the achievement of future revenue and profit hurdles, which have been measured using management’s estimate of likely outcomes. The accrued liability represents the pro-rated portion (based on service provided to date) of the estimated future cash payments, discounted using the relevant US Treasury bond rate. The liability will be reassessed at each reporting period based on the latest consolidated entity’s forecasts, with fair value adjustments recognised in profit and loss. 2-8 Lease liabilities Current Lease liabilities Non-current Lease liabilities Accounting policies Lease liabilities 2022 $M 16.4 16.4 55.9 55.9 2021 $M 13.1 13.1 70.1 70.1 Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity’s incremental borrowing rate. 2-9 Accrued incentive compensation Non-current Accrued incentive compensation 2022 $M 48.6 48.6 2021 $M 48.0 48.0 Barrow Hanley, a Group subsidiary, has a profit-sharing plan (the Plan). Under the Plan, Barrow Hanley may award annual bonuses to key employees, a portion of which may be paid to the eligible employees through the issuance of unit interests. The awards of unit interests have a three-year vesting period from the grant date, and the value is determined at grant date based on a predetermined formula. Under the provisions of the Plan, these awards contain a feature whereby shares may be put back to the Parent of Barrow Hanley (Perpetual US Holding Company, Inc) in the future. Movement in the fair value of the liability is taken to staff related expenses. The liability is re-measured each period until settlement. Unit interests are also entitled to distributions, which are accrued at each reporting date. An increase to staff related expenses is recorded with the corresponding increase to the liability included in employee benefits. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report128 Section 3 Capital management and financing This section outlines how Perpetual manages its capital structure and related financing costs, including its balance sheet liquidity and access to capital markets. Perpetual’s objectives when managing capital are to safeguard its ability to continue as a going concern, to continue to provide returns to shareholders and benefits to other stakeholders, and to reduce the cost of capital. 3-1 Cash and cash equivalents Bank balances Short-term deposits Short-term deposits represent rolling 90 day term deposits. 3-2 Borrowings The consolidated entity has access to the following credit facilities: Total facility used Facility unused 2022 $M 158.4 17.0 175.4 2022 $M 258.4 122.3 2021 $M 139.6 7.5 147.1 2021 $M 166.0 189.1 The existing syndicated facility consists of a multi-currency term loan with a maximum commitment of $117 million USD or equivalent (Facility A1), a multi-currency revolving loan facility with a maximum commitment of $78 million USD (Facility A2), a multi-currency revolving loan facility with a maximum commitment of $100 million AUD or equivalent (Facility B) and a bank guarantee facility with a maximum commitment of $135 million AUD. Facilities A1 and A2 attract an interest rate equal to LIBOR plus a margin, Facility B has an interest rate of BBSY plus a margin and Facility C is at a flat rate. All the facilities have a term of three years, expiring in November 2023. The syndicated facility is unsecured and had a weighted average floating interest rate of 2.05% at 30 June 2022, inclusive of the undrawn line fee (30 June 2021: 1.22%). The consolidated entity utilised Facilities A1 and A2 to fund the purchase of Barrow Hanley in the prior year and the amount borrowed remains outstanding as at 30 June 2022. The loans are held in USD. The consolidated entity drew down on Facility B during the period, primarily to fund the acquisitions of Jacaranda Financial Planning Pty Ltd and Laminar Capital Pty Ltd. The loan is held in AUD. The consolidated entity relies on bank guarantees issued under Facility C to meet its regulatory capital requirements (refer to Section 3-5). When the syndicated facility was established, the consolidated entity incurred costs of $5.4 million (including underwriting fees). These costs have been capitalised and will be released to profit and loss over the term of the facility. There currently remains $2.4 million of capitalised borrowing costs that have yet to be released to the profit and loss account. The consolidated entity has agreed to various debt covenants including shareholders’ funds as a specified percentage of total assets, a maximum ratio of gross debt to EBITDA and a minimum interest cover. The consolidated entity is in compliance with the covenants at 30 June 2022. Should the consolidated entity not satisfy any of these covenants, the outstanding balance of the loans may become due and payable. The consolidated entity’s bank facility is subject to annual review and management intends to refinance the existing facility for a further period prior to the due date. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022129 Accounting policies Borrowings are initially recognised at fair value net of transaction costs incurred. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost. The financial liability under the facility has a fair value equal to its carrying amount. Interest-bearing borrowings are removed from the Consolidated Statement of Financial Position when the obligation specified in the contract is discharged, cancelled or expired. Financing costs comprise interest payments on borrowings and derivative financial instruments calculated using the effective interest method, and unwinding of discounts on provisions. 3-3 Contributed equity Fully paid ordinary shares 56,713,419 (2021: 56,573,279) Treasury shares 651,437 (2021: 615,080) Movements in share capital Balance at beginning of year Shares issued: – Issue of ordinary shares1 – Movement on treasury shares Balance at end of year 2022 $M 858.1 (40.4) 817.7 2021 $M 854.6 (39.3) 815.3 2022 2021 NUMBER OF SHARES $M NUMBER OF SHARES $M 55,958,199 815.3 46,714,750 539.8 140,140 (36,357) 5.3 (2.9) 9,184,671 58,778 56,061,982 817.7 55,958,199 273.4 2.1 815.3 1. During the period the consolidated entity issued 62,171 ($2.6 million) and 77,969 ($2.7 million) shares in September 2021 and April 2022 respectively to satisfy Dividend Re-investment Plan requirements. The Company does not have authorised capital or par value in respect of its issued shares. Terms and conditions Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors and are fully entitled to any surplus capital. Accounting policies Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. Repurchase of share capital (treasury shares) When share capital recognised as equity is repurchased or held by employee share plans and subject to vesting conditions, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 130 3-4 Reserves Foreign currency translation reserve General reserve Equity compensation reserve Accounting policies Foreign currency translation reserve 2022 $M 13.3 0.1 13.4 20.9 34.3 2021 $M (18.9) 0.1 (18.8) 21.3 2.5 The Foreign Currency Translation Reserve (FCTR) records the foreign currency differences from the translation of the financial information of foreign operations that have a functional currency other than Australian dollars. Equity compensation reserve The equity compensation reserve represents the value of the Company’s own shares held by an equity compensation plan that the consolidated entity is required to include in the consolidated financial statements. This reserve will be reversed against share capital when the underlying shares vest to the employee. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the consolidated entity’s own equity instruments. 3-5 Commitments and contingencies (a) Commitments Capital expenditure commitments 2022 $M 2021 $M Contracted but not provided for and payable within one year 38.6 3.5 Capital expenditure contracted but not provided for and payable within one year primarily relates to further investments in the unlisted investment fund which is primarily invested in multiple collateralised loan obligation transactions and warehouse facilities in connection therewith. (b) Contingencies Contingent liabilities Bank guarantee in favour of the ASX Settlement and Transfer Corporation Pty Limited with respect to trading activities Bank guarantee in favour of certain Group subsidiaries in relation to the provision of responsible entity services and custodial or depository services Bank guarantee issued in respect of the lease of premises of Perpetual Limited 1.0 1.0 127.8 0.6 129.4 127.8 0.6 129.4 In the ordinary course of business, contingent liabilities exist in respect of claims and potential claims against entities in the consolidated entity. The consolidated entity does not consider that the outcomes of any such claims known to exist at the date of this report, either individually or in aggregate, are likely to have a material effect on its operations or financial position. Accounting policies Contingent liabilities A contingent liability is a possible obligation arising from past events that may be incurred subject to the outcome of an uncertain future event not wholly within the consolidated entity’s control. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022131 Section 4 Risk management Perpetual’s activities expose it to a variety of financial and non-financial risks. Financial risks include credit risk, liquidity risk and market risks (including currency risk, interest rate risk and price risk). Key financial exposures are operational risk and a failure to meet regulatory compliance obligations. The nature of the financial risk exposures arising from financial instruments, the objectives, policies and processes for managing these risks, and the methods used to measure them are detailed below. 4-1 Financial risk management Perpetual recognises that risk is part of doing business and that the ongoing management of risk is critical to its success. The approach to managing risk is articulated in the Risk Management Framework. The Risk Management Framework is supported by the Risk Group, who is responsible for the design and maintenance of the framework, establishing and maintaining group-wide risk management policies, and providing regular risk reporting to the Board, the Audit, Risk and Compliance Committee (ARCC) and the Group Executive Leadership Team. This framework is approved by the Perpetual Board of Directors (the Board) and is reviewed for adequacy and appropriateness on an annual basis. The Board regularly monitors the overall risk profile of the consolidated entity and sets the risk appetite for the consolidated entity, usually in conjunction with the annual planning process. The Board is responsible for ensuring that management has appropriate processes in place for managing all types of risk, ranging from financial risk to operational risk. To assist in providing ongoing assurance and comfort to the Board, responsibility for risk management oversight has been delegated to the ARCC. The main functions of this Committee are to oversee the consolidated entity’s accounting policies and practices, the integrity of financial statements and reports, the scope, quality and independence of external audit arrangements, the monitoring of the internal audit function, the effectiveness of risk management policies and the adequacy of insurance programs. This Committee is also responsible for monitoring overall legal and regulatory compliance. The activities of the consolidated entity expose it to the following financial risks: credit risk, liquidity risk and market risk. These are distinct from the financial risks borne by customers which arise from financial assets managed by the consolidated entity in its role as fund manager, trustee and responsible entity. The risk management approach to, and exposures arising from, the Exact Market Cash Fund (EMCF 1) are disclosed in Section 5-1. i. Credit risk Credit risk refers to the risk that a customer or counterparty to a financial instrument will fail to meet its contractual obligations resulting in financial loss to the consolidated entity. Credit risk arises principally from the consolidated entity’s cash and trade receivables. The consolidated entity mitigates its credit risk by ensuring cash deposits are held with high credit quality financial institutions and other highly liquid investments are held with trusts operated by the entity. The maximum exposure of the consolidated entity to credit risk on financial assets which have been recognised on the Consolidated Statement of Financial Position is the carrying amount, net of any provision for doubtful debts. The table below outlines the consolidated entity’s maximum exposure to credit risk as at reporting date. Cash and cash equivalents Trade receivables Other receivables and other financial assets Listed equity securities and unlisted unit trusts Unlisted investment fund Debt securities 2022 $M 175.4 117.4 5.5 140.0 8.6 3.4 2021 $M 147.1 114.1 18.6 146.4 – 4.0 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report132 4-1 Financial risk management continued i. Credit risk continued Details of the assets held in debt securities are listed below: 30-JUN-22 Debt securities AAA TO AA- $M 0.2 A+ TO A- $M 0.7 BBB+ TO BBB- $M 2.5 TOTAL $M 3.4 Credit risk is managed on a functional basis across the various business segments. As a result of the swap agreements between EMCF 1 and the consolidated entity, the consolidated entity consolidates EMCF 1 and is hence exposed to credit risk on its exposure to the $186.3 million (2021: $163.9 million) of underlying investments held by EMCF 1. The maximum exposure would only be realised in the unlikely event that the recoverable value of all the underlying investments held by EMCF 1 decline to $nil. Further details of the credit risk relating to EMCF 1 are disclosed in Section 5-1. (a) Investments held by seed fund investments Perpetual incubates new investment strategies through the establishment of seed funds for the purpose of building investment track records and developing asset management skills before releasing products to Perpetual’s investors. Exposure to credit risk arises on the consolidated entity’s financial assets held by the seed funds, mainly being debt securities, loans, deposits with financial institutions and derivative financial instruments. The exposure to credit risk is monitored on an ongoing basis by the funds’ investment managers and managed in accordance with the investment mandate of the funds. (b) Other financial assets The consolidated entity’s exposure to trade receivables is influenced mainly by the individual characteristic of each customer. Trade receivables are managed by the accounts receivable department. Outstanding fees and receivables are monitored on a daily basis and an aged debtors report is prepared and monitored by Group Finance. Management assesses the credit quality of customers by taking into account their financial position, past experience and other factors. Credit risk further arises in relation to financial guarantees given to wholly owned subsidiaries. Such guarantees are only provided in exceptional circumstances and are subject to specific Board approval and are monitored on a quarterly basis as part of the consolidated entity’s regulatory reporting. The consolidated entity held cash and cash equivalents of $175.4 million at 30 June 2022 (2021: $147.1 million). The cash and cash equivalents are held with bank and financial institution counterparties, which are predominantly rated ‘BBB’ or higher, based on Standard & Poor’s rating. The credit quality of financial assets that are neither past due nor impaired is assessed by reference to external credit ratings, if available, or to historical information on counterparty default rates. The tables below provide an aged analysis of the financial assets which were past due but not impaired: 30 JUNE 2022 30 JUNE 2021 LESS THAN 30 DAYS $M 30 TO 60 DAYS $M 60 TO 90 DAYS $M MORE THAN 90 DAYS $M LESS THAN 30 DAYS $M TOTAL $M 30 TO 60 DAYS $M 60 TO 90 DAYS $M MORE THAN 90 DAYS $M TOTAL $M Trade and other receivables 5.0 1.3 1.2 1.8 9.3 3.6 1.6 0.5 1.8 7.5 The nominal values of financial assets which were impaired and have been provided for are as follows: Trade and other receivables 2022 $M 3.0 2021 $M 3.1 The impaired financial assets relate mainly to independent customers and investors who are in unexpectedly difficult economic situations, where the consolidated entity is of the view that the full carrying value of the receivable cannot be recovered. The consolidated entity does not hold any collateral against the trade and other receivables. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022133 (c) Unlisted investment fund The consolidated entity holds an equity interest in an unlisted investment fund established to invest its assets primarily in the economic equity interests of multiple collateralised loan obligation (CLO) transactions and warehouse facilities in connection therewith. Exposure to credit risk arises on the underlying pool of bank loan assets which serve as collateral for the CLO’s. At 30 June 2022, the underlying pool of bank loan assets were issued by counterparties rated ‘B-‘ or higher, based on Standard & Poor’s rating. Exposure to credit risk is monitored on an ongoing basis by the funds’ investment managers and managed in accordance with the investment mandate of the funds. ii. Liquidity risk Liquidity risk is the risk that the financial obligations of the consolidated entity cannot be met as and when they fall due without incurring significant costs. The consolidated entity’s approach to managing liquidity is to maintain a level of cash or liquid investments sufficient to meet its ongoing financial obligations. The consolidated entity has a robust liquidity risk framework in place which is principally driven by the Capital Management Review (refer to Section 4-1(v) for further information). At 30 June 2022, total base capital requirements were $41 million, as per the Group Treasury Policy, compared to $314 million of available liquid funds. The consolidated entity manages liquidity risk by continually monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets. In addition, a six-month forecast of liquid assets, cash flows and balance sheet is reviewed by the Board on a semi-annual basis to ensure there is sufficient liquidity within the consolidated entity. The tables below show the maturity profiles of the financial liabilities for the consolidated entity. These have been calculated using the contractual undiscounted cash flows. 30 JUNE 2022 30 JUNE 2021 LESS THAN 1 YEAR $M 1 TO 5 YEARS $M GREATER THAN 5 YEARS $M TOTAL $M LESS THAN 1 YEAR $M 1 TO 5 YEARS $M GREATER THAN 5 YEARS $M 58.1 – 13.8 71.9 39.7 260.8 41.3 341.8 – – 6.8 6.8 97.8 260.8 61.9 420.5 73.0 – 12.8 85.8 21.7 170.3 50.7 242.7 – – 10.3 10.3 TOTAL $M 94.7 170.3 73.8 338.8 Liabilities Payables Borrowings Lease liabilities iii. Market risk Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates and equity prices – will affect the consolidated entity’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The consolidated entity is subject to the following market risks: (a) Currency risk The consolidated entity’s investment of capital in foreign operations – for example, subsidiaries or associates with functional currencies other than the Australian dollar – exposes the consolidated entity to the risk of changes in foreign exchange rates. Variations in the value of these foreign operations arising as a result of exchange differences are reflected in the foreign currency translation reserve in equity. The consolidated entity is exposed to currency risk relating to the United States (USD), United Kingdom (GBP), Singapore (SGD), Europe (EUR) and the Hong Kong (HKD) operations. Where it is considered appropriate, the consolidated entity takes out economic hedges against larger foreign exchange denominated revenue streams (primarily US dollar). The primary objective of hedging is to ensure that, if practical, the effect of changes in foreign exchange rates on the consolidated capital ratios are minimised. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report134 4-1 Financial risk management continued iii. Market risk continued (a) Currency risk continued Exposure to currency risk The summary quantitative data about the consolidated entity’s exposure to currency risk as reported to management of the consolidated entity is as follows. The following are financial assets and liabilities in currencies other than the reporting currency of the consolidated entity. Financial assets and liabilities Cash and cash equivalents Receivables Other financial assets Unlisted investment fund Payables Borrowings Net statement of financial position exposure 30 JUNE 2022 30 JUNE 2021 USD $M GBP $M SGD $M EUR $M HKD $M USD $M GBP $M SGD $M 72.3 35.0 50.6 8.6 (4.3) (185.8) 3.3 – – – (0.1) – 11.2 1.6 – – (0.3) – (23.6) 3.2 12.5 1.3 – – – – – 1.3 1.3 – – – (0.1) – 66.3 34.6 39.8 (24.1) (170.3) 1.4 – – – (0.1) – 8.8 0.3 – – (0.2) – 1.2 (53.7) 1.3 8.9 The table below demonstrates the impact of a 10% strengthening/(weakening) of the Australian dollar against the currencies noted above at 30 June, on the net profit after tax and equity of the consolidated entity with all other variables held constant: +/- 10% AUD weakens by 10% (b) Interest rate risk 30 JUNE 2022 30 JUNE 2021 IMPACT ON NET PROFIT AFTER TAX $M IMPACT ON EQUITY $M IMPACT ON NET PROFIT AFTER TAX $M IMPACT ON EQUITY $M (4.5)/4.5 0.4/(0.4) (3.1)/3.1 3.3/(3.3) 4.5 (0.4) 3.1 (3.3) Interest rate risk is the risk to the consolidated entity’s earnings and capital arising from changes in market interest rates. The financial instruments held that are impacted by interest rate risk consist of cash and borrowings. The consolidated entity’s exposure to interest rate risk arises predominantly on the $383.1 million syndicated facility, of which $260.8 million was drawn as at 30 June 2022 (refer to Section 3-2). This loan facility is rolled on a one-month, three-month or six-month term. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022The consolidated entity’s exposure to interest rate risk for the financial assets and liabilities is set out as follows: At 30 June 2022 Financial assets Cash and cash equivalents Receivables Other financial assets Financial liabilities Payables Lease liabilities Borrowings At 30 June 2021 Financial assets Cash and cash equivalents Receivables Other financial assets Financial liabilities Payables Lease liabilities Borrowings FLOATING INTEREST RATE $M FIXED INTEREST RATE $M NON-INTEREST BEARING $M 158.4 1.3 0.4 160.1 – – 260.8 260.8 142.7 1.6 – 144.3 – – 170.3 170.3 17.0 – 3.0 20.0 – 72.3 – 72.3 4.4 – 3.9 8.3 – 83.2 – 83.2 – 121.6 148.6 270.2 93.7 – – 93.7 – 131.1 146.4 277.5 90.7 – – 90.7 135 TOTAL $M 175.4 122.9 152.0 450.3 93.7 72.3 260.8 426.8 147.1 132.7 150.3 430.1 90.7 83.2 170.3 344.2 The table below demonstrates the impact of a 1% change in interest rates, with all other variables held constant, on the net profit after tax and equity of the consolidated entity. +/- 1% 30 JUNE 2022 30 JUNE 2021 IMPACT ON NET PROFIT AFTER TAX $M IMPACT ON EQUITY $M IMPACT ON NET PROFIT AFTER TAX $M IMPACT ON EQUITY $M (0.7)/0.7 (0.7)/0.7 (0.2)/0.2 (0.2)/0.2 The impact on net profit after tax for the year would be mainly as a result of an (increase)/decrease in interest expense on borrowings. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report136 4-1 Financial risk management continued iii. Market risk continued (c) Market risks arising from assets under management and funds under advice The consolidated entity’s revenue is significantly dependent on assets under management (AUM) and funds under advice (FUA). Management calculates the expected impact to annualised revenue from a 10% movement in AUM and FUA to be approximately $48.8 million. (d) Market risks arising from seed funds The consolidated entity is exposed to equity price risk on investments held by its seed funds. The funds may also be exposed, to a small extent, to the other risks which influence the value of those shares or units (including foreign exchange rates and interest rates). The asset management divisions’ Investment Review Committee is responsible for reviewing and recommending new incubation strategies and ensuring management has appropriate processes and systems in place for managing investment risk for each fund. The funds’ specialist asset managers aim to manage the impact of price risks through the use of consistent and carefully considered investment guidelines. Risk management techniques are used in the selection of investments, including derivatives, which are only acquired if they meet specified investment criteria. Daily monitoring of trade restrictions and derivative exposure against limits is undertaken, with any breach of these restrictions reported to the Chief Risk Officer. These funds may be party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates, interest rates and equity indices in accordance with the funds’ investment guidelines. The seed funds may be exposed to currency risk and interest rate risk. Their investment managers may enter into derivative contracts (such as forwards, swaps, options and futures) through approved counterparties to manage this risk. However, the use of these contracts must be consistent with the investment strategy and restrictions of each seed fund, and agreed acceptable level of risk. These funds are also exposed to interest rate risk on cash holdings. Interest income from cash holdings is earned at variable interest rates and investments in cash holdings are at call. (e) Market risks arising from the Exact Market Cash Fund The consolidated entity is further subject to market risks through the Exact Market Cash Fund (EMCF 1). The Fund was established with the purpose of providing an exact return utilising the Bloomberg AusBond Bank Bill Index (the benchmark index) to investors. The impact of EMCF 1 on the consolidated entity’s financial results is dependent on the performance of the Fund relative to the benchmark. Unrealised gains/losses are taken through profit and loss. The risk management approach to, and exposures arising from EMCF 1 are disclosed in Section 5-1. iv. Fair value The following tables present the consolidated entity’s assets and liabilities measured and recognised at fair value, by valuation method, at 30 June 2022. The different levels have been defined as follows: – Level 1: Quoted prices in active markets for identical assets and liabilities; – Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and – Level 3: Inputs for the asset or liability that are not based on observable market data. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022AT 30 JUNE 2022 Financial assets Listed equity securities Unlisted unit trusts Unlisted investment fund Structured products – EMCF assets Debt securities AT 30 JUNE 2021 Financial assets Listed equity securities Unlisted unit trusts Structured products – EMCF assets Debt securities 137 LEVEL 1 $M LEVEL 2 $M LEVEL 3 $M TOTAL $M 50.2 – – 1.8 3.4 55.4 – 89.8 – 184.5 – 274.3 – – 8.6 – – 8.6 50.2 89.8 8.6 186.3 3.4 338.3 LEVEL 1 $M LEVEL 2 $M LEVEL 3 $M TOTAL $M 26.2 – 18.2 4.0 48.4 – 120.2 145.7 – 265.9 – – – – – 26.2 120.2 163.9 4.0 314.3 2021 $M – – – – – – – The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values: Balance at 1 July Investments Capital returns Withdrawals Foreign exchange movements Net change in fair value (unrealised) Balance at 30 June 2022 $M – 9.2 (0.6) – 0.7 (0.7) 8.6 The investment in the unlisted investment fund, representing equity interests of multiple collateralised loan obligation (CLO) transactions, is classified as a Level 3 fair value instrument as it is an unlisted entity, valued using unobservable inputs. The fair value of the unlisted investment fund has been determined using the net asset value of the fund as at 30 June 2022 obtained from an independent, third-party fund administrator. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report138 4-1 Financial risk management continued iv. Fair value continued For the fair value of the unlisted investment fund, reasonably possible changes at the reporting date to the net asset value of the fund, holding other inputs constant, would have the following effects: +/- 10% 30 JUNE 2022 30 JUNE 2021 IMPACT ON NET PROFIT AFTER TAX $M IMPACT ON EQUITY $M IMPACT ON NET PROFIT AFTER TAX $M IMPACT ON EQUITY $M 0.6/(0.6) 0.6/(0.6) – – The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the consolidated entity is the last traded price. Marketable shares included in other financial assets are traded in an organised financial market and their fair value is the current quoted last traded price for an asset. The carrying amounts of bank term deposits and receivables approximate fair value. The fair value of investments in unlisted shares in other corporations is determined by reference to the underlying net assets and an assessment of future maintainable earnings and cash flows of the respective corporations. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The estimates of fair value where valuation techniques are applied are subjective and involve the exercise of judgement. Changing one or more of the assumptions applied in valuation techniques to reasonably possible alternative assumptions may impact on the amounts disclosed. The carrying amount of financial assets and financial liabilities, less any impairment, approximates their fair value, except for those outlined in the table below, which are stated at amortised cost. Structured products – EMCF liabilities v. Capital risk management 2022 2021 CARRYING AMOUNT $M 187.7 FAIR VALUE $M 186.3 CARRYING AMOUNT $M 163.3 FAIR VALUE $M 163.9 A Capital Management Review is carried out on an annual basis and is submitted to the CFO for review and approval. If changes are required to funding requirements, the capital structure or to the capital management strategy of the consolidated entity, the CFO will present their recommendation to the Board via the Audit, Risk and Compliance Committee. The Group Policy – Treasury ensures that the level of financial conservatism is appropriate for the Company’s businesses including acting as custodian and manager of clients’ assets and operation as a trustee company. This policy also aims to provide business stability and accommodate the growth needs of the consolidated entity. This policy comprises three parts: (a) Dividend policy Dividends paid to shareholders are typically in the range of 60–90% of the consolidated entity’s underlying profit after tax attributable to members of the Company, which is in line with the new policy announced in December 2020. In certain circumstances, the Board may declare a dividend outside of that range. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022139 (b) Review of capital and distribution of excess capital A review of the consolidated entity’s capital base is performed at least semi-annually and excess capital that is surplus to the consolidated entity’s current requirements may potentially be returned to shareholders in the absence of a strategically aligned, value accretive investment opportunity. (c) Gearing policy The current gearing policy aims to target an investment grade credit rating by maintaining a corporate debt to capital ratio (corporate debt/(corporate debt + equity)) of 30% or less and EBIT interest cover (EBIT/interest expense) of more than ten times. The gearing ratio is 22.0% as at 30 June 2022 (2021: 15.6%). The EBIT interest cover ratio for the consolidated entity as at 30 June 2022 was 21 times (2021: 21 times). Accounting policies The consolidated entity initially recognises receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the consolidated entity becomes a party to the contractual provisions of the instrument. Financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the consolidated entity becomes a party to the contractual provisions of the instrument. The consolidated entity derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets at fair value through profit or loss Financial assets are mandatorily classified and measured at fair value through profit or loss on initial recognition. Attributable transaction costs are recognised in profit or loss when incurred. Financial assets mandatorily classified at fair value through profit or loss are measured at fair value and changes recognised in profit or loss. Receivables Receivables are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, receivables are measured at amortised cost using the effective interest method less impairment losses. The consolidated entity derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the consolidated entity is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the Consolidated Statement of Financial Position when, and only when, the consolidated entity has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Derivative financial instruments The consolidated entity holds derivative financial instruments within funds to hedge its interest rate, foreign exchange and market risk exposures. Derivatives are recognised initially at fair value. Attributable transaction costs are recognised in profit or loss when incurred. Financial guarantee contracts Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. Financial guarantees are given to wholly owned subsidiaries, within the consolidated entity. Such guarantees are only provided in exceptional circumstances and are subject to specific Board approval and are monitored on a quarterly basis as part of the consolidated entity’s regulatory reporting. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate. Where guarantees in relation to loans or other payables of subsidiaries are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report140 Section 5 Other disclosures This section contains other miscellaneous disclosures that are required by accounting standards. 5-1 Structured products assets and liabilities i. Exact Market Cash Fund Current assets Perpetual Exact Market Cash Fund Current liabilities Perpetual Exact Market Cash Fund 2022 $M 186.3 186.3 187.7 187.7 2021 $M 163.9 163.9 163.3 163.3 The Exact Market Cash Fund (EMCF 1) current asset balances reflect the fair value of the net assets held by the Fund. The current liabilities balances represent the consolidated entity’s obligation to the Fund’s investors. The difference between the current assets and current liabilities balance has been recorded in profit and loss. EMCF 1 was established with the purpose of providing an exact return that matched the Bloomberg AusBond Bank Bill Index (the benchmark index), or a variant thereon, to investors. The Fund’s ability to pay the benchmark return to the investors is guaranteed by the consolidated entity. The National Australia Bank has provided EMCF 1 product with a guarantee to the value of $3 million (2021: $3 million) to be called upon in the event that the consolidated entity is unable to meet its obligations. Due to the guaranteed benchmark return to investors, the consolidated entity is exposed to the risk that the return of EMCF 1 differs from that of the benchmark. The return of EMCF 1 is affected by risks to the underlying investments in the EMCF 1 portfolio, which are market, liquidity and credit risks. The underlying investments of EMCF 1 are valued on a hold to maturity basis for unit pricing purposes, which is consistent with the way in which Perpetual manages the portfolio. EMCF 1 use professional investment managers to manage the impact of the above risks by using prudent investment guidelines and investment processes. The investment managers explicitly target low volatility and aim to achieve this through a quality screening process that is designed to assess the likelihood of default and difficult trading patterns during periods of rapid systematic risk reduction. There is a clearly defined mandate for the inclusion of sectors and issuances. In periods of risk reduction, diversification may be narrowly focused on cash and highly liquid investment-grade assets. At times of higher risk tolerance, appropriate diversification should be expected. Interest rate exposure is limited to +/- 90 days versus the benchmark. The portfolios are constructed with the goal of having a diversified set of securities, while largely retaining the low risk characteristics of a cash investment. Liquidity risk of EMCF 1 is managed by maintaining a level of cash or liquid investments in the portfolios which is sufficient to meet a level and pattern of investor redemptions (consistent with past experience), distributions or other of the Fund’s financial obligations. This is complemented by a dynamic portfolio management process that ensures liquidity is increased when there is an expectation of a deterioration in market conditions. Cash flow forecasts are prepared for the Fund, including the consideration of the maturity profile of the securities, interest and other income earned by the Fund, and projected investor flows based on historical trends and future expectations. Furthermore, the credit quality of financial assets is managed by EMCF 1 using Standard & Poor’s rating categories or equivalent, in accordance with the investment mandate of EMCF 1. The exposure in each credit rating category is monitored on a daily basis. This review process allows assessment of potential losses as a result of risks and the undertaking of corrective actions. The investment managers have undertaken to restrict the asset portfolio of the underlying funds to securities, deposits or obligations with a Standard & Poor’s or equivalent ‘BBB’ fund credit quality rating or higher. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022141 The investment managers of the underlying Funds invested by EMCF 1 enter into a variety of derivative financial instruments such as credit default swaps and foreign exchange forwards in the normal course of business in order to mitigate credit risk exposure and to hedge fluctuations in foreign exchange rates. Details of the assets held by the underlying Funds are set out below: 30 JUNE 2022 Corporate bonds and money market securities Mortgage and asset backed securities Cash 30 JUNE 2021 Corporate bonds and money market securities Mortgage and asset backed securities Cash AAA TO AA- $M 66.4 70.2 1.8 138.4 AAA TO AA- $M 33.1 80.0 18.3 131.4 A+ TO A- $M 40.5 – – 40.5 A+ TO A- $M 25.9 – – 25.9 BBB+ TO BBB- $M 7.4 – – 7.4 BBB+ TO BBB- $M 6.6 – – 6.6 TOTAL $M 114.3 70.2 1.8 186.3 TOTAL $M 65.6 80.0 18.3 163.9 The table below demonstrates the impact of a 1% change in the fair value of the underlying assets of EMCF 1, due to market price movements, based on the values at reporting date. 1% increase 1% decrease 2022 $M 1.9 (1.9) 2021 $M 1.6 (1.6) The actual impact of a change in the fair value of the underlying assets of EMCF 1 on the consolidated profit before tax is dependent on the performance of the Fund relative to the benchmark index. If the Fund’s performance is below the benchmark return, then the consolidated entity will be obliged to make payments to the investor. Conversely, if the Fund’s performance is higher than the benchmark, then the benefit of the higher performance accrues to the consolidated entity. In addition, any variance between the consolidated entity’s current assets EMCF 1 balance and the consolidated entity’s current liabilities EMCF 1 balance would be reflected in profit and loss. Accounting policies The EMCF product, consisting of EMCF 1, is consolidated as the consolidated entity is exposed to variable returns and has the power to affect those returns. The swap agreements result in the benchmark rate of return being paid to the unitholders in the Fund. The swap agreements are inter-company transactions between a subsidiary of the Company and the Funds and are eliminated on consolidation. Assets and liabilities of EMCF 1 are disclosed separately on the face of the Consolidated Statement of Financial Position as structured product assets and structured product liabilities. The benchmark return generated by EMCF 1 and distributions to unitholders are disclosed in Section 1-3 Expenses as distributions and expenses related to structured products. The financial assets represented by the structured products assets balance are accounted for in accordance with the underlying accounting policies of the consolidated entity. These consist of investments that are mandatorily classified at FVTPL. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 142 5-2 Parent entity disclosures As at, and throughout, the financial year ended 30 June 2022 the parent entity of the consolidated entity was Perpetual Limited. Result of the parent entity Profit after tax for the year Total comprehensive income for the year Financial position of the parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising: Share capital Reserves Retained earnings Total equity Parent entity contingencies 2022 $M 61.6 61.6 2021 $M 96.7 96.7 523.5 394.4 1,644.4 1,536.6 438.3 749.7 817.7 7.3 69.7 336.0 572.4 815.3 24.9 124.0 894.7 964.2 The Directors are of the opinion that provisions are not required in respect of any parent entity contingencies, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Uncalled capital of the controlled entities 2022 $M 12.5 2021 $M 12.5 In the ordinary course of business, contingent liabilities exist in respect of claims and potential claims against the parent entity. The parent entity does not consider that the outcome of any such claims known to exist at the date of this report, either individually or in aggregate, are likely to have a material effect on its operations or financial position. Parent entity guarantees In November 2020, the Company provided a financial guarantee to secure a syndicated banking facility (refer to Section 3-2). The bank facility covers a period of three years. No liability was recognised by the Company in relation to this guarantee as the fair value of this guarantee is considered to be immaterial. The Company does not expect the financial guarantee to be called upon. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 20225-3 Controlled entities NAME OF COMPANY Perpetual Limited5 Controlled Entities1 Australian Trustees Limited5 Commonwealth Trustees Pty Ltd2 Fordham Business Advisors Pty Ltd2 Perpetual Acquisition Company Ltd5 Perpetual Assets Pty Ltd2 Perpetual Australia Pty Limited2,5 Perpetual Digital Holdings Pty Limited2 Perpetual Investment Management Limited Perpetual Mortgage Services Pty Limited2 Perpetual Services Pty Limited2 Perpetual Superannuation Limited Perpetual Tax and Accounting Pty Ltd2 Perpetual Trust Services Limited Perpetual Trustee Company (Canberra) Limited5 Perpetual Trustee Company Limited4 Perpetual Trustees Consolidated Limited5 Perpetual Trustees Queensland Limited5 Perpetual Trustees Victoria Limited5 Perpetual Trustees WA Ltd5 Queensland Trustees Pty Ltd2 Trillium ESG Global High Conviction Equity Fund Perpetual Capital Accumulation Portfolio Perpetual Exact Market Cash Fund Perpetual Exact Market Cash Fund No. 2 Perpetual Nominees Limited Barrow Hanley US ESG Value BHMS All Country World Ex-U.S. Value BHMS Credit BHMS Global Value Dividend BHMS Concentrated U.S. Opportunities BHMS US Opportunistic Value DLCV, SCV Trillium ESG Global Equity Fund BHMS Diversified Small Cap Value Strategy 143 COUNTRY OF INCORPORATION AND PRINCIPAL PLACE OF BUSINESS Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia USA USA USA USA USA USA USA USA 2021 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 58 – BENEFICIAL INTEREST 2022 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 – 100 100 100 100 – 100 100 52 100 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report144 5-3 Controlled entities continued BENEFICIAL INTEREST NAME OF COMPANY Entities under the control of Perpetual Acquisition Company Limited The Trust Company Limited Fintuition Pty Limited2 Fintuition Institute Pty Limited2 Skinner Macarounas Pty Limited2 Perpetual US Holding Company, Inc PPT Asset Management UK Limited Trillium Asset Management UK Limited Perpetual Europe Holding Company B.V Jacaranda Financial Planning Pty Ltd6 Perpetual Asia – Hong Kong Ltd10 PPT Finance UK Ltd11 Entities under the control of PPT Finance UK Ltd Barrow Hanley Concentrated Emerging Markets Fund Trillium ESG Global Conviction Fund Entities under the control of Perpetual Digital Holdings Pty Limited Perpetual Digital Pty Ltd2 Perpetual Roundtables Pty Limited2 Perpetual Wholesale Fiduciary Services Pty Ltd Laminar Capital Pty Ltd7 Entities under the control of Laminar Capital Pty Ltd Easterly Asset Management Pty Ltd8 Laminar Advisory Pty Ltd9 Entities under the control of Perpetual Trustee Company Limited Perpetual Corporate Trust Limited Perpetual Custodians Ltd P.T. Limited Entities under the control of P.T. Limited Perpetrust Nominees Proprietary Limited2 Entities under the control of The Trust Company Limited Perpetual (Asia Holdings) Pte. Ltd. The Trust Company (Australia) Limited The Trust Company (UTCCL) Limited Perpetual CT (Asia) Limited Entities under the control of The Trust Company (Australia) Limited The Trust Company (Nominees) Limited The Trust Company (PTAL) Limited The Trust Company (RE Services) Limited 2022 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 COUNTRY OF INCORPORATION AND PRINCIPAL PLACE OF BUSINESS Australia Australia Australia Australia USA UK UK Netherlands Australia Hong Kong UK Ireland Ireland Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia Australia Hong Kong Australia Australia Australia 2021 % 100 100 100 100 100 100 100 100 – – – – – 100 100 100 – – – 100 100 100 100 100 100 100 100 100 100 100 Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022145 COUNTRY OF INCORPORATION AND PRINCIPAL PLACE OF BUSINESS USA USA USA USA USA USA USA USA USA 2021 % 100 100 100 74 100 100 100 61 – 100 Netherlands 100 100 26 Singapore Australia Australia BENEFICIAL INTEREST 2022 % 100 100 100 74 100 100 100 50 100 100 100 100 26 NAME OF COMPANY Entities under the control of Perpetual US Holding Company, Inc Trillium Asset Management Group, LLC Perpetual US Services, LLC Perpetual US TDC, LLC BHMS, LLC BHMS Investment GP, LLC Entities under the control of Trillium Asset Management Group, LLC Trillium Asset Management, LLC Trillium Impact GP, LLC Entities under the control of Perpetual US TDC, LLC Barrow Hanley Concentrated Emerging Markets ESG Opportunities Fund Barrow Hanley Emerging Markets Value Fund Entities under the control of Perpetual Europe Holding Company B.V Perpetual Netherlands B.V Entities under the control of Perpetual (Asia Holdings) Pte. Ltd. Perpetual (Asia) Limited Entities under the control of The Trust Company (RE Services) Limited The Trust Company (Sydney Airport) Limited Associates Loan RQ Ltd3 1. Entities in bold are directly owned by Perpetual Limited. 2. A small proprietary company as defined by the Corporations Act 2001 and is not required to be audited for statutory purposes. 3. The carrying amount of this investment is $nil (2021: $nil). 4. Perpetual Trustee Company Limited has a branch operation in New Zealand known as Perpetual Trustee Company Limited (New Zealand branch). 5. Company is a party to the Deed of Cross Guarantee as noted in Section 5-4. 6. Jacaranda Financial Planning was acquired in August 2021. 7. Laminar Capital Pty Ltd was acquired in October 2021. 8. Easterly Asset Management was acquired in October 2021. 9. Laminar Advisory Pty Ltd was acquired in October 2021. 10. Perpetual Asia – Hong Kong Ltd was incorporated in November 2021. 11. PPT Finance UK Ltd was incorporated in March 2022. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 146 5-4 Deed of cross guarantee Perpetual Limited and certain wholly owned subsidiaries listed below (collectively, ‘the Closed Group’) have entered into a Deed of Cross Guarantee (‘the Deed’) effective 29 June 2017. The effect of the Deed is that Perpetual Limited has guaranteed to pay any deficiency in the event of a winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. The subsidiaries have also given a similar guarantee in the event that Perpetual Limited is wound up. Pursuant to ASIC Corporations (wholly owned companies) Instrument 2016/785 (‘Instrument’), the wholly owned subsidiaries noted below within the Closed Group are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports. The subsidiaries to the Deed forming the Closed Group are: – Perpetual Trustees Consolidated Limited – Perpetual Trustee Company (Canberra) Limited – Perpetual Trustees Victoria Limited – Perpetual Trustees Queensland Limited – Perpetual Trustees WA Limited – Perpetual Australia Pty Limited – Perpetual Acquisition Company Limited – Australian Trustees Limited. A summarised Consolidated Statement of Profit or Loss and Other Comprehensive Income and Consolidated Statement of Financial Position comprising the Closed Group as at 30 June 2022 are set out below. Revenue Expenses Financing costs Net profit before tax Income tax benefit Net profit after tax Other comprehensive income, net of income tax Total comprehensive income Total comprehensive income attributable to: Equity holders of the Company YEAR ENDED 30 JUNE 2022 $M YEAR ENDED 30 JUNE 2021 $M 97.3 (42.9) (8.1) 46.3 14.7 61.0 – 61.0 136.1 (37.1) (5.6) 93.4 2.5 95.9 – 95.9 61.0 95.9 Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022 Current assets Cash and cash equivalents Receivables Current tax assets Structured Products – EMCF assets Prepayments Total current assets Non-current assets Other financial assets Property, plant and equipment Intangibles Deferred tax assets Other assets Total non-current assets Total assets Current liabilities Payables Structured Products – EMCF liabilities Current tax liabilities Employee benefits Lease liabilities Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Employee benefits Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 147 2022 $M 2021 $M 65.9 278.4 4.1 186.3 5.8 540.5 55.5 176.6 – 163.9 11.0 407.0 1,083.9 1,044.3 53.3 – 38.9 0.9 1,177.0 1,717.5 288.7 187.7 – 69.3 11.7 – 62.6 0.1 32.7 – 1,139.7 1,546.7 153.3 163.3 5.3 64.1 10.4 1.7 557.4 398.1 258.4 166.0 – 17.0 37.9 4.6 317.9 875.3 842.2 817.7 7.3 17.2 842.2 1.6 13.7 50.3 4.8 236.4 634.5 912.2 815.3 24.9 72.0 912.2 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report148 5-5 Unconsolidated structured entities Perpetual Limited and its subsidiaries have interests in various structured entities that are not consolidated. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. Perpetual has an interest in a structured entity when the Company has a contractual or non-contractual involvement that exposes it to variable returns from the performance of the entity. The Company’s interest includes investments held in securities or units issued by these entities and fees earned from management of the assets within these entities. Information on the Company’s interests in unconsolidated structured entities as at 30 June is as follows: INVESTMENT FUNDS – COMPANY MANAGED Year ended 30 June 2022 Statement of Financial Position line item Other financial assets – non-current Year ended 30 June 2021 Statement of Financial Position line item Other financial assets – non-current CARRYING AMOUNT $M MAXIMUM EXPOSURE TO LOSS1 $M 96.7 98.3 98.9 85.2 1. The maximum exposure to loss is the maximum loss that could be recorded through profit and loss as a result of the involvement with these entities. Company managed investment funds The Company manages investment funds through asset management subsidiaries. Control over these managed investment funds may exist since the Company has power over the activities of the fund. However, these funds have not been consolidated because the Company does not have the ability to affect the level of returns and is not exposed to significant variability in returns from the funds. The Company earns management fees from the management of these investment funds which are commensurate with the services provided and are reported in revenue from the provision of services. Management fees are generally based on the value of the assets under management. Therefore, the fees earned are impacted by the composition of the assets under management and fluctuations in financial markets. The revenue earned is included in revenue from the provision of services in Section 1-2. Investment funds are investment vehicles that consist of a pool of funds collected from several investors for the purpose of investing in securities such as money market instruments, debt securities, equity securities and other similar assets. For all investment funds, the Company’s maximum exposure to loss is equivalent to the cost of the investment in the fund. Investment funds are generally financed through the issuance of fund units. 5-6 Share-based payments i. Employee share purchase plans (a) Long-term Incentive Plan (LTI) The LTI plan was introduced for the purpose of making future long-term incentive grants to eligible employees. (b) One Perpetual Share Plan (OPSP) The OPSP awards eligible employees with annual grants of up to $1,000 worth of Perpetual shares subject to the Company meeting its net profit after tax target. Shares granted under the OPSP cannot be sold or transferred until the earlier of three years from the date the shares are allocated or cessation of employment. Employees who are granted shares have full dividend and voting rights during this time. For financial accounting purposes, shares granted under the OPSP are deemed to vest immediately because there is no risk of forfeiture. Accordingly, the fair value of the grant is recognised as an expense over the performance period with the corresponding entry directly in equity. (c) Details of the movement in employee shares All shares granted under the LTI and OPSP plans in the 2022 financial year were issued at market price. Dividends on employee shares are either received directly by the employees or held in the share plan bank account depending on the likelihood of the shares vesting. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022149 During the year, $13,531,639 (2021: $12,216,989) of amortisation relating to shares, performance rights and share rights was recognised as an expense with the corresponding entry directly in equity. Shares are granted to eligible employees under the LTI plan. The number of shares granted is determined by dividing the value of the grant by the VWAP of Perpetual shares traded on the ASX in the five business days up to and including the grant date. The following table illustrates the movement in employee shares during the financial year: NUMBER 2022 2021 ii. Rights OPENING BALANCE 1 JULY VESTED SHARES SHARES PURCHASED ON MARKET SHARES ISSUED ON MARKET FORFEITED SHARES GRANTED SHARES CLOSING BALANCE AT 30 JUNE 615,080 (366,205) 402,562 673,858 (254,406) 195,628 – – (204,479) 204,479 651,437 (235,557) 235,557 615,080 During the year, the Company granted $11,057,375 (30 June 2021: $8,919,923) of Share Rights and Performance Rights in accordance with the LTI plan. Share Rights are granted to Executives under the Variable Incentive Plan. The number of Share Rights granted is determined by dividing the value of the grant by the VWAP of Perpetual shares traded on the ASX in the five business days up to and including the grant date. Performance Rights are granted to eligible employees under the LTI Plan. The number of Performance Rights granted is determined by dividing the value of the LTI grant by the VWAP of Perpetual shares traded on the ASX in the five business days up to and including the grant date, discounted for the non-payment of dividends during the performance period, as calculated by an independent external adviser. Performance Rights and Share Rights do not receive dividends or have voting rights until they have vested and have been converted into Perpetual shares. 30 JUNE 2022 MOVEMENT IN NUMBER OF RIGHTS GRANTED GRANT DATE VEST DATE EXPIRY DATE TSR HURDLE OR NON-TSR HURDLE ISSUE PRICE 1 JULY 2021 GRANTED FORFEITED VESTED OUTSTANDING AT 30 JUNE 2022 Oct 2016 Oct 2019 Sep 2031 Non TSR $39.40 1,776 Sep 2017 Sep 2019 Sep 2032 Non TSR $46.93 21,386 Oct 2017 Oct 2020 Sep 2032 Non TSR $44.64 6,013 Jul 2018 Jul 2018 Jul 2018 Jul 2018 Sep 2021 Sep 2034 Non TSR $28.70 44,864 Sep 2022 Sep 2034 TSR Oct 2022 Oct 2034 Non TSR Sep 2023 Sep 2034 TSR $8.22 $31.53 $8.40 5,276 11,131 5,275 Sep 2018 Sep 2020 Sep 2033 Non TSR $37.03 30,951 Oct 2018 Oct 2021 Oct 2033 Non TSR $34.97 246,288 Jul 2019 Jul 2019 Sep 2023 Sep 2035 Sep 2024 Sep 2035 TSR TSR Oct 2019 Oct 2021 Oct 2034 Non TSR $12.30 52,034 $12.63 $33.64 52,031 13,811 Oct 2019 Oct 2022 Oct 2034 Non TSR $31.53 171,487 Oct 2020 Oct 2023 Oct 2030 Non TSR $23.82 305,280 – – – – – – – – – – – – – – – – – – – – – – (1,776) (21,386) – – (3,024) 2,989 – – – – – 44,864 5,276 11,131 5,275 30,951 (2,593) (103,279) 140,416 – – – – 52,034 52,031 (1,039) (12,772) – (11,303) (2,418) 157,766 (18,992) (1,376) 284,912 Jul 2020 Jul 2020 Jul 2020 Sep 2023 N/A1 Sep 2024 N/A1 Sep 2025 N/A1 Oct 2021 Oct 2024 N/A1 Dec 2021 Dec 2024 N/A1 Non TSR Non TSR Non TSR Non TSR Non TSR $33.72 $19.93 $16.88 $32.66 $34.43 – – – – – 56,701 28,349 28,349 – – – 243,177 (5,967) 4,646 – – – – – – 56,701 28,349 28,349 237,210 4,646 967,603 361,222 (39,894) (146,031) 1,142,900 1. Rights either vest or are forfeited on the vesting date, hence there is no expiry date. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report150 5-6 Share-based payments continued ii. Rights continued 30 JUNE 2021 MOVEMENT IN NUMBER OF RIGHTS GRANTED GRANT DATE VEST DATE EXPIRY DATE TSR HURDLE OR NON-TSR HURDLE ISSUE PRICE 1 JULY 2020 GRANTED FORFEITED VESTED Oct 2016 Oct 2019 Sep 2031 Non TSR Sep 2017 Sep 2019 Sep 2032 Non TSR Oct 2017 Oct 2020 Sep 2032 Non TSR Jul 2018 Oct 2020 Oct 2034 Non TSR $39.40 $46.93 $44.64 $35.76 4,059 21,386 99,981 3,404 Jul 2018 Sep 2021 Sep 2034 Non TSR $28.70 44,864 Jul 2018 Oct 2021 Oct 2034 Non TSR $33.64 Jul 2018 Sep 2022 Sep 2034 TSR Jul 2018 Oct 2022 Oct 2034 Non TSR Jul 2018 Sep 2023 Sep 2034 TSR Sep 2018 Sep 2020 Sep 2033 Non TSR Oct 2018 Oct 2020 Sep 2033 Non TSR $8.22 $31.53 $8.40 $37.03 $37.29 2,474 5,276 16,411 5,275 30,951 1,417 Oct 2018 Oct 2021 Oct 2033 Non TSR $34.97 261,311 – – – – – – – – – – – – OUTSTAND -ING AT 30 JUNE 2021 1,776 21,386 6,013 – – 44,864 – – (2,283) – (336) (93,632) (3,404) – – (835) (1,639) – – (2,946) (2,334) – – – – – (1,417) – 5,276 11,131 5,275 30,951 – (5,391) (9,632) 246,288 52,034 52,031 13,811 Jul 2019 Sep 2023 Sep 2035 Jul 2019 Sep 2024 Sep 2035 TSR TSR $12.30 $12.63 – – 52,034 52,031 – – – – Oct 2019 Oct 2021 Oct 2034 Non TSR $33.64 15,720 Oct 2019 Oct 2022 Oct 2034 Non TSR $31.53 190,185 – – (1,782) (127) (12,540) (6,158) 171,487 Oct 2020 Oct 2023 Oct 2030 Non TSR $23.82 – 320,070 (14,394) (396) 305,280 702,714 424,135 (38,224) (121,022) 967,603 The fair value of services received in return for Performance Rights and Share Rights granted is based on the fair value of rights granted, measured using a face value approach for scorecard performance conditions, Monte Carlo simulation for TSR performance conditions and the Black Scholes option pricing formula for Share Rights and EPS performance conditions, with the following inputs: VALUATION DATE 1 OCT 2016 VALUATION DATE 1 SEP 2017 VALUATION DATE 1 OCT 2017 VALUATION DATE 1 SEPT 2018 VALUATION DATE 1 OCT 2018 VALUATION DATE 1 OCT 2018 VALUATION DATE 1 OCT 2018 VALUATION DATE 1 SEP 2019 VALUATION DATE 1 SEP 2019 Performance period 3 years 2 years 3 years 2 years 1 year 2 years 3 years 1 year 2 years Share price ($) 46.28 54.70 51.94 43.89 42.40 42.40 42.40 35.55 35.55 Dividend yield (%) Expected volatility (%) Risk free interest rate (%) 5.5 N/A N/A 5.1 25 N/A 5.2 N/A N/A 6.4 20 N/A 6.6 N/A 1.93 6.6 N/A 2.00 6.6 N/A 2.07 6.5 30 6.7 30 0.70 0.70 VALUATION DATE 1 SEP 2019 VALUATION DATE 1 OCT 2019 VALUATION DATE 1 OCT 2019 VALUATION DATE 1 OCT 2019 VALUATION DATE 1 SEP 2020 VALUATION DATE 1 SEP 2020 VALUATION DATE 1 OCT 2020 VALUATION DATE 1 OCT 2020 VALUATION DATE 1 OCT 2020 Performance period 3 years 1 year 2 years 3 years 3 years 4 years 1 year 2 years 3 years Share price ($) 35.55 37.85 37.85 37.85 30.62 30.62 28.40 28.40 28.40 Dividend yield (%) Expected volatility (%) Risk free interest rate (%) 6.7 30 0.70 5.7 N/A N/A 5.9 N/A N/A 6.1 N/A N/A 5.5 40 5.5 40 0.27 0.39 5.0 N/A N/A 5.5 N/A N/A 5.9 N/A N/A Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022151 VALUATION DATE 1 SEP 2021 VALUATION DATE 1 SEP 2021 VALUATION DATE 1 SEP 2021 2 years 3 years 4 years 41.66 4.8 30 0.01 41.66 5.0 30 0.44 41.66 5.0 30 0.44 Performance period Share price ($) Dividend yield (%) Expected volatility (%) Risk free interest rate (%) Accounting policies Employee share purchase plans Share incentive programs allow employees to acquire shares in the Company. The fair value of shares and/or rights granted under these programs is recognised as an employee expense with a corresponding increase in equity. Fair value is measured at grant date and amortised over the period during which employees become unconditionally entitled to the shares. The fair value of the rights granted is measured using a binomial model, taking into account the terms and conditions upon which the rights were granted. The amount recognised as an expense is adjusted to reflect the actual number of rights that vest except where forfeiture is due to share prices not achieving their threshold for vesting. Deferred staff incentives The Company grants certain employees shares under long-term incentive, short-term incentive and retention plans. Under these plans, shares vest to employees over relevant vesting periods. To satisfy the long-term incentives granted, the Company purchases or issues shares under the LTI Plan. The fair value of the shares granted is measured by the share price adjusted for the terms and conditions upon which the shares were granted. This fair value is amortised on a straight-line basis over the applicable performance and vesting period. The consolidated entity makes estimates of the number of shares that are expected to vest. Where appropriate, revised estimates are reflected in profit or loss with the corresponding adjustment to the equity compensation reserve. Where shares containing a market linked hurdle do not vest, due to total shareholder return not achieving the threshold for vesting, an adjustment is made to retained earnings and equity compensation reserve. Rights Performance Rights and Share Rights are issued for the benefit of eligible Perpetual employees pursuant to the LTI Plan. Unlike Perpetual’s other employee share plans, there will be no treasury shares issued to employees at the rights grant date. Over the vesting period of the rights, an equity remuneration expense will be amortised to the equity compensation reserve based on the fair value of the rights at the grant date. On vesting, the intention is to settle the rights with available treasury shares. A fair value adjustment between contributed equity and treasury shares will be recognised to revalue the recycled shares to the fair value of the rights at the vesting date. 5-7 Key management personnel and related parties Total compensation of key management personnel Short-term Post-employment Share-based Other long-term Total 2022 $ 2021 $ 9,159,692 7,485,441 292,886 259,017 2,047,581 1,858,563 77,501 46,143 11,577,660 9,649,164 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report152 5-7 Key management personnel and related parties continued Related party disclosures Executives have not entered into material contracts with the Company or a member of the consolidated entity since the end of the previous financial year and there were no material contracts involving key management personnel’s interests existing at year end. Perpetual services and products, including financial advice by Perpetual Private, are made available to Directors and KMP on normal commercial terms consistent with other employees and clients. Controlled entities and associates The consolidated entity has a related party relationship with its key management personnel (see Remuneration Report). Business transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. 5-8 Auditor’s remuneration Audit and review services Auditors of the Group – KPMG Australia Audit and review of financial statements – Group Audit and review of financial statements – controlled entities Audit and review of financial statements – Perpetual Funds1 Audit and review of financial statements – Administrator or Trustee2 Overseas KPMG Firms Audit and review of financial statements – Group Audit and review of financial statements – controlled entities Total audit and review services Assurance Services Auditors of the Group – KPMG Australia Regulatory assurance services Other assurance services Overseas KPMG Firms Regulatory assurance services Other assurance services Total Assurance Services Other Services3 Auditors of the Group – KPMG Australia Advisory Services Other non-assurance services Total Other Services 2022 $ 2021 $ 852,443 685,872 205,961 173,130 1,992,612 2,046,181 396,797 352,544 3,447,813 3,257,727 194,513 304,515 178,771 188,412 3,946,841 3,624,910 255,426 250,175 470,178 463,509 725,604 713,684 21,160 23,164 769,928 153,558 35,755 189,313 – 43,443 757,127 43,988 30,889 74,877 4,906,082 4,456,914 1. These fees are incurred by the consolidated entity on behalf of managed funds and superannuation funds for which Perpetual Investment Management Limited and Perpetual Superannuation Limited act as responsible entity or trustee for and are recovered from the funds via management fees. 2. These fees are incurred by the consolidated entity on behalf of external funds for which the consolidated entity act as administrator, responsible entity or trustee for and are recovered from the funds via management fees. 3. Other services primarily relate to the provision of risk and controls gap analysis and agreed upon procedures. Non-audit services paid to KPMG are in accordance with the Company’s auditor independence policy as outlined in Perpetual’s Corporate Responsibility Statement. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022153 5-9 Subsequent events A final dividend of 97 cents per share fully franked was declared on 25 August 2022 and is to be paid on 30 September 2022. On 25 August, Perpetual announced that it has entered into a binding Scheme Implementation Deed (‘SID’) with Pendal Group (‘Pendal’) (ASX:PDL) under which Perpetual will acquire 100% of shares in Pendal by way of a Scheme of Arrangement (‘the Acquisition’). The Scheme is subject to customary conditions and approvals including court, regulatory and Pendal shareholder approval as well as obtaining the appropriate number of Pendal client consents. Pendal’s Board of Directors has unanimously recommended that Pendal shareholders accept Perpetual’s offer, in the absence of any superior proposal and subject to independent expert’s opinion that the scheme is in the best interests of shareholders. The acquisition is currently expected to close by late calendar year 2022 or early calendar year 2023, subject to requisite shareholder and regulatory approvals. The acquisition will be effected via a share exchange with every 7.50 shares of Pendal common stock exchanged for one newly issued share in Perpetual and A$1.976 cash per Pendal share. Based on the last closing share price of Perpetual at 24 August 2022 of $30.30, the offer implies an acquisition price of $6.02 for each Pendal share. The cash component of the offer, totalling $757 million, will be funded via a new debt facility. The new facility will also re-finance the existing debt facility and includes undrawn headroom for liquidity management purposes. The new facility will consist of three core facilities, three acquisition facilities and a bridge loan facility. The core facilities will consist of: – a multi-currency redrawable loan facility with a maximum commitment of A$175 million or equivalent and a term of three years expiring in November 2025 (Facility Core 1); – a multi-currency term loan facility with a maximum commitment of USD128 million or equivalent and a term of four years expiring in November 2026 (Facility Core 2); and – a redrawable Letter of Credit facility with a maximum commitment of A$160 million and a term of three years expiring in November 2025 (Facility Core 3). The acquisition facilities will consist of: – a multi-currency redrawable loan facility with a maximum commitment of A$115 million and a term of three years expiring in November 2025 (Facility Acquisition 1); – a UK pound term loan facility with a maximum commitment of GBP115 million and a term of three years expiring in November 2025 (Facility Acquisition 2); and – a multi-currency term loan facility with a maximum commitment of USD45 million and a term of four years expiring in November 2026 (Facility Acquisition 3). The bridge loan facility will have a maximum commitment of A$400 million and a term of two years expiring in November 2024 (Bridge Facility). Interest expense on the new facilities other than Facility Core 3 will be based on the relevant floating rate benchmark plus a margin. Interest expense on Facility Core 3 is at a flat rate. As previously indicated, Perpetual will not be raising equity to fund any portion of the cash consideration. Other than the matters noted above, the Directors are not aware of any other event or circumstance since the end of the financial year not otherwise dealt with in this report that has affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report154 Section 6 Basis of preparation This section sets out Perpetual’s accounting policies that relate to the financial statements as a whole. Where an accounting policy is specific to a single note, the policy is described in the note to which it relates. This section also shows new accounting standards, amendments and interpretations, and whether they are effective in 2022 or later years. We explain how these changes are expected to impact the financial position and performance of Perpetual. 6-1 Reporting entity Perpetual Limited (‘the Company’) is domiciled in Australia. The consolidated financial report of the Company as at and for the year ended 30 June 2022 comprises the Company and its controlled entities (together referred to as ‘the consolidated entity’) and the consolidated entity’s interests in associates. Perpetual is a for-profit entity and primarily involved in portfolio management, financial planning, trustee, responsible entity and compliance services, executor services, investment administration and custody services. The financial report was authorised for issue by the Directors on 25 August 2022. The Company is a public company listed on the Australian Securities Exchange (code: PPT), incorporated in Australia and operating in Australia, United States, United Kingdom, the Netherlands, Singapore and Hong Kong. The consolidated annual report for the consolidated entity as at and for the year ended 30 June 2022 is available at perpetual.com.au. 6-2 Basis of preparation i. Statement of compliance The financial report is a general purpose financial report prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report of the consolidated entity also complies with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). ii. Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, except for financial assets which are measured at fair value. The consolidated financial statements are presented in Australian dollars, which is the functional currency of the majority of the consolidated entity. The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 dated 1 April 2016 and in accordance with that Instrument, all financial information presented in Australian dollars has been rounded to the nearest one hundred thousand dollars, unless otherwise stated. Where necessary, comparative information has been restated to conform to changes in presentation in the current year. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022155 Use of judgements and estimates The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. COVID-19 continues to have an impact on global economies and financial markets, resulting in significant economic uncertainty and market volatility. It has also led to material structural shifts in the behaviour of the economy and unprecedented actions by financial markets, governments and regulators. Financial markets are also dealing with the impact of Russia’s invasion of Ukraine and rising inflation and interest rates. The consolidated entity continues to monitor the impact of these factors on its operations, control environment and financial reporting. Management has evaluated whether there were any additional areas of significant judgment or estimation uncertainty, assessed the impact of market inputs and variables potentially impacted by prevailing conditions on the carrying values of its assets and liabilities, and considered the impact on the consolidated entity’s financial statement disclosures. The consolidated entity’s revenues have a high degree of exposure to market volatility which has the potential to lead to a material financial impact. The US operations are similarly exposed to market movements due to the nature of the business. Whilst this has been factored into the preparation of the financial report, the accounting policies and methodologies have been applied on a consistent basis throughout the financial year. The Directors and management continue to closely monitor developments with a focus on potential financial and operational impacts as developments arise. Significant areas of estimation, uncertainty and critical judgements in applying accounting policies are described below: (a) Judgements Information about critical judgements in applying accounting policies in accordance with Australian Accounting Standard AASB 10 Consolidated Financial Statements is included in Section 5-3 Controlled entities. (b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the year ended 30 June 2022 are included in the following notes: – Section 1-2 Revenue – Section 1-3 Expenses – Section 1-4 Income taxes – Section 2-1 Business combinations – Section 2-5 Intangibles – Section 2-6 Provisions – Section 2-7 Employee benefits – Section 2-8 Lease liabilities – Section 2-9 Accrued incentive compensation – Section 3-5 Commitments and contingencies – Section 4-1 Financial risk management – Section 5-1 Structured products assets and liabilities – Section 5-6 Share-based payments Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report156 6-2 Basis of preparation continued ii. Basis of preparation continued (b) Assumptions and estimation uncertainties continued The consolidated entity has considered the impact of prevailing conditions specifically with respect to the recognition of Expected Credit Losses (ECLs) on the consolidated entity’s Receivables (Section 2-2), Intangibles and the impairment of goodwill and other intangible assets (Section 2-5), Structured products assets and liabilities (Section 5-1), and Other financial assets (Section 2-3). While there has been an increase in the estimation uncertainty and the application of further judgement within these areas, they are not considered to have had a material financial impact on these areas. Measurement of fair values A number of the consolidated entity’s accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities. The consolidated entity has an established control framework with respect to the measurement of fair values. This includes overseeing all significant fair value measurements. Significant unobservable inputs and valuation adjustments are regularly reviewed. If third party information, such as broker quotes or pricing services, is used to measure fair values, an assessment is made of the evidence obtained from the third parties. This is used to support the conclusion that such valuations meet the requirements of AASB 9 Financial Instruments, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Audit, Risk and Compliance Committee. When measuring the fair value of an asset or a liability, the consolidated entity uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: – Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. – Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices). – Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The consolidated entity recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes: – Section 2-7 Employee benefits – Section 2-9 Accrued incentive compensation – Section 4-1 Financial risk management – Section 5-1 Structured products assets and liabilities – Section 5-6 Share-based payments Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022157 6-3 Other significant accounting policies Significant accounting policies have been included in the relevant notes to which the policies relate. Other significant accounting policies are listed below: i. Basis of consolidation (a) Subsidiaries Subsidiaries are entities controlled by the consolidated entity. The consolidated entity controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases. (b) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the consolidated entity’s interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Gains and losses are recognised when the contributed assets are consumed or sold by the associates or, if not consumed or sold, when the consolidated entity’s interest in such entities is disposed of. (c) Collateralised loan obligation (CLO) Perpetual holds an equity interest in a collateralised loan obligation investment fund (the ‘Fund’) established to invest its assets primarily in the economic equity interests of multiple CLO transactions and warehouse facilities in connection therewith. The Fund is managed by Barrow Hanley Credit Management L.L.C (‘BH Credit’). A significant judgement for Perpetual is whether the Group controls the Fund and is therefore required to consolidate the Fund in the results of the consolidated entity. Control is determined based on the consolidated entity’s assessment of decision making authority, rights held by other parties, remuneration and exposure to returns. In assessing whether the consolidated entity controls the Fund it is necessary to consider whether the consolidated entity acts in capacity of principal or agent for the Fund. In doing so, the consolidated entity has assessed in combination, whether the kick-out rights of third-party investors into the Fund are substantive and the aggregate economic interest of the consolidated entity into the Fund. Based on our assessment, we have determined that the Fund does not require consolidation into the Group. ii. Foreign currency (a) Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss. Translation differences on financial assets and liabilities carried at fair value are reported as part of their fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. (b) Foreign operations The results and financial position of subsidiaries that have a functional currency different from the presentation currency are translated into Australian dollars as follows: – Assets and liabilities for each statement of financial position item presented are translated at the closing rate at the date of that statement of financial position. – Income and expenses for each statement of comprehensive income item are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions). Foreign currency differences are recognised in other comprehensive income. When an international operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred to profit or loss or to non-controlling interest as part of the profit or loss on disposal. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report158 6-3 Other significant accounting policies continued iii. Payables Payables are non-interest-bearing and are stated at amortised cost, with the exception of contingent consideration recognised in business combinations, which is recorded at fair value at the acquisition date. Contingent consideration recognised in business combinations is classified as a financial liability and is subsequently remeasured to fair value with changes in fair value recognised in profit or loss. iv. Impairment (a) Financial assets (including receivables) ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between the present value of the cash flows due to the entity in accordance with the contract and the present value of cash flows that the consolidated entity expects to receive. The consolidated entity has applied the simplified approach under AASB 9 to calculate expected credit losses for Receivables. Under this approach, expected credit losses are calculated based on the life of the instrument. During this process, the probability of the non-payment of the receivables is assessed using the single loss rate approach. Impairment losses on financial assets measured at amortised cost are recognised in profit or loss and deducted from the gross carrying amount of the assets. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. (b) Non-financial assets The carrying amounts of the consolidated entity’s non-financial assets, other than deferred tax assets (see Section 1-4), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the ‘cash-generating unit’ or CGU). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. The consolidated entity’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Statement of Comprehensive Income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each balance sheet date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022159 v. Hedge accounting A foreign currency exposure arises from a net investment in subsidiaries that have a different functional currency from that of the consolidated entity. The risk arises from the fluctuation in spot exchange rates between the functional currency of the subsidiaries and the consolidated entity’s functional currency, which causes the amount of the net investment to vary in the consolidated financial statements. This risk may have a significant impact on the consolidated entity’s financial statements. The consolidated entity’s policy is to hedge these exposures only when not doing so would be expected to have a significant impact on the regulatory capital ratios of the Company and its subsidiaries. The hedged risk in the net investment hedge is the variability in the US dollar exchange rate against the Australian dollar that will result in a reduction in the carrying amount of the consolidated entity’s net investment in the subsidiaries. An economic relationship exists between the hedged net investment and hedging instrument due to the shared foreign currency risk exposure. The consolidated entity uses foreign currency denominated debt as a hedging instrument. The consolidated entity assesses effectiveness by comparing past changes in the carrying amount of the debt that are attributable to a change in the spot rate with past changes in the investment in the foreign operation due to movement in the spot rate (the offset method). The consolidated entity’s policy is to hedge the net investment only to the extent of the debt principal; therefore, the hedge ratio is established by aligning the principal amount of the debt with the carrying amount of the net investment that is designated. There are no sources of ineffectiveness because changes in the spot exchange rate are designated as the hedged risk. 6-4 Changes in significant accounting policies Except as described below, the accounting policies applied in these financial statements are the same as those applied in the consolidated entity’s financial statements as at and for the year ended 30 June 2021. (a) Software-as-a-Service (SaaS) arrangements The International Financial Reporting Standards Interpretations Committee (IFRIC) has issued an agenda decision on configuration or customisation costs in a cloud computing arrangement (April 2021). This decision discusses whether configuration or customisation expenditure relating to SaaS arrangements can be recognised as an intangible asset and if not, over what time period the expenditure is expensed. The Group’s accounting policy has historically been to capitalise all costs related to SaaS arrangements as intangible assets in the Statement of Financial Position. The adoption of the above agenda decisions has resulted in a reclassification of these intangible assets to either a prepaid asset in the Statement of Financial Position and/or recognition as an expense in the Statement of Comprehensive Income, impacting both the current and/or prior periods presented. SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over the contract period. As such the Group does not receive a software intangible asset at the contract commencement date. The Group does not have control over the software nor can it restrict others’ access to the benefits of the software. Key judgements in applying the accounting policy In applying the entity’s accounting policy, the Directors made the following key judgements that may have the most significant effect on the amounts recognised in the financial statements. Determination whether configuration and customisation services are distinct from the SaaS access Where the SaaS arrangement supplier provides both configuration and customisation services, judgement has been applied to determine whether each of these services are distinct or not from the underlying use of the SaaS application software. Distinct configuration and customisation costs are expensed as incurred. Non-distinct configuration and customisation costs are capitalised as a prepayment and expensed over the term of the SaaS contract. The Group recognised $7.0m (2021: $0.2m) as prepayments in implementing SaaS arrangements. Impact of change in accounting policy As a result of adopting the new SaaS policy, associated costs previously capitalised and amortised as software assets but now considered to be SaaS arrangements have been identified. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report160 6-4 Changes in significant accounting policies continued (a) Software-as-a-Service (SaaS) arrangements continued Impact of change in accounting policy continued The change has been applied retrospectively and impacted the financial statements of the consolidated entity as follows: Consolidated Statement of Financial Position YEAR ENDED 30 JUNE 2021 Intangible assets Other assets Total non-current assets Total assets Deferred tax liability Total non-current liabilities Total liabilities Net assets Retained earnings Total equity Consolidated Statement of Financial Position AS AT 1 JULY 2020 Intangible assets Total non-current assets Total assets Deferred tax liability Total non-current liabilities Total liabilities Net assets Retained earnings Total equity AS PREVIOUSLY REPORTED $M ADJUSTMENTS $M AS RESTATED $M 870.6 7.9 1,167.2 1,624.6 17.9 350.9 712.1 912.5 94.7 912.5 (7.7) – (7.7) (7.7) (2.3) (2.3) (2.3) (5.4) (5.4) (5.4) 862.9 7.9 1,159.5 1,616.9 15.6 348.6 709.8 907.1 89.3 907.1 AS PREVIOUSLY REPORTED $M ADJUSTMENTS $M AS RESTATED $M 444.5 663.5 1,169.1 17.4 124.0 514.8 654.3 95.2 654.3 (4.9) (4.9) (4.9) (1.4) (1.4) (1.4) (3.5) (3.5) (3.5) 439.6 658.6 1,164.2 16.0 122.6 513.4 650.8 91.7 650.8 Financial ReportNotes to and forming part of the financial statements for the year ended 30 June 2022Perpetual Annual Report 2022Consolidated Statement of Profit and Loss and Other comprehensive income FULL YEAR 30 JUNE 2021 Administrative and general expenses Depreciation and amortisation Net profit before tax Income tax expense Net profit after tax Total comprehensive income Earnings per share Basic EPS – cents per share Diluted – cents per share Consolidated Statement of Cash Flows FULL YEAR 30 JUNE 2021 Cash payments in the course of operations Net cash from operation activities Payments for property plant, plant equipment and software Net cash used in investing activities 161 AS PREVIOUSLY REPORTED $M ADJUSTMENTS $M AS RESTATED $M 140.0 45.9 106.7 (31.8) 74.9 55.7 135.0 133.2 5.1 (2.3) (2.9) 0.9 (2.0) (2.0) (3.6) (3.6) 145.1 43.7 103.8 (30.9) 72.9 53.7 131.4 129.6 AS PREVIOUSLY REPORTED $M ADJUSTMENTS $M AS RESTATED $M (493.3) 128.7 (21.9) (487.2) (8.2) (8.2) 8.2 8.2 (501.5) 120.5 (13.7) (478.9) 6-5 New standards and interpretations not yet adopted There are no new standards, amendments to standards, and interpretations effective for the first time in the current financial period that would have a material impact to the consolidated entity. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 162 Directors’ declaration 1. In the opinion of the Directors of Perpetual Limited (the ‘Company’): (a) the consolidated financial statements and notes set out on pages 105 to 161, and the Remuneration Report in the Directors’ Report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2022 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. There are reasonable grounds to believe that the Company and the certain wholly owned subsidiaries identified in Section 5-4 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and these entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785. 3. The Directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and Managing Director and the Chief Financial Officer for the financial year ended 30 June 2022. 4. The Directors draw attention to Section 6-2(i) of the consolidated financial statements which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors: Dated at Sydney this 25th day of August 2022. Tony D’Aloisio Chairman Rob Adams Chief Executive Officer and Managing Director Perpetual Annual Report 2022 Independent Auditor’s Report To the shareholders of Perpetual Limited 163 Independent Auditor’s Report To the shareholders of Perpetual Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Perpetual Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2022 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2022; • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors’ Declaration. The Consolidated Entity consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Consolidated Entity in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. Key Audit Matters The Key Audit Matters we identified are: • Revenue recognition; • Valuation of goodwill; and • Employee remuneration. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 127 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 164 Independent Auditor’s Report To the shareholders of Perpetual Limited Revenue recognition ($753m) Refer to Section 1-2 ‘Revenue’ to the Financial Report The key audit matter How the matter was addressed in our audit Revenue is a Key Audit Matter due to: Our procedures included: • its significance to the financial performance • Inquiring of the Consolidated Entity to understand of the Consolidated Entity; • the significant audit effort required as a result of: − − the various streams of revenue generated from a diverse range of products and services, each with varying fee rates and contractual terms; the generation of revenue in multiple geographical locations across two of the Consolidated Entity’s operating segments; − key inputs used in the calculation of revenue are sourced from several of the Consolidated Entity’s third party service organisations which provide custody, investment administration and unit registry services, as well as custodian banks. This required us to understand the key processes and assess the key controls of these service organisations relevant to the Consolidated Entity’s revenue recognition; and • involvement of senior team members in assessing the Consolidated Entity’s accounting policy for performance fees against the requirements of the accounting standards, for which the Consolidated Entity’s revenue recognition policy is dependent on varying contractual terms. Significant revenue streams include fees from: • the provision of investment management services to institutional mandate clients, investment funds and superannuation funds; • trustee and document custodian services; • management and administrative services for securitisation trusts; and processes for key revenue streams, and testing key controls at the Consolidated Entity related to these revenue streams. • Assessing the Consolidated Entity’s policies for recognition of revenue against the requirements of the accounting standards. • Testing statistical samples of revenue across each key revenue stream. We performed the following: − Inspected contracts and assessed whether revenue is recognised in accordance with the revenue recognition criteria; − Recalculated the investment management and adviser services revenue recognised based on the various fee rates in the underlying contracts, and the underlying funds under management (FUM) or funds under advice (FUA), sourced from third party service organisation reports or statements from custodial banks. We compared this to invoices and the revenue recognised by the Consolidated Entity; − Agreed securitisation and trustee services revenue to invoices and subsequent cash receipts; and − Agreed financial advice and accounting services revenue to invoices, engagement letters and subsequent cash receipts. • Analysing data within the investment management revenue stream to identify trends and outliers to further inform our work. Examples of outliers included contracts where fees exhibit an inverse movement to FUM flows or client fees falling considerably outside of statistical trends. For outliers identified, we recalculated the revenue recognised based on the underlying contracts and the FUM. We compared this to the revenue recognised by the Consolidated Entity. • the provision of financial advice and • Obtaining and reading the Consolidated Entity’s accounting services. third party service organisations GS007 (Guidance Statement 007 Audit Implications of the Use of Service Organisations for Investment Management Services) and SOC 1 (System and Organisation Controls) assurance reports to understand the 128 Perpetual Annual Report 2022 165 service organisations’ processes and assess controls related to investment administration, custody and unit registry. • Assessing the reputation, professional competence and independence of the auditors of the GS007 and SOC 1 assurance reports. • Testing a sample of performance fee revenue recognised to the Consolidated Entity’s bank statements. We recalculated the performance fee revenue based on the underlying contractual terms and product performance relative to the benchmark, such as the Reserve Bank of Australia Cash Rate. We compared this to the performance fee revenue recognised by the Consolidated Entity. 129 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 166 Independent Auditor’s Report To the shareholders of Perpetual Limited Valuation of goodwill ($617m) Refer to Section 2-5 ‘Intangibles’ to the Financial Report The key audit matter How the matter was addressed in our audit The Consolidated Entity’s annual testing of goodwill for impairment is a key audit matter given the: • size of the balance (being 35% of total assets); • net outflow of FUM experienced by certain Cash Generating Units (CGUs) of the Consolidated Entity in the current year. This increases the possibility of goodwill being impaired; Working with our valuation specialists, our procedures included: • Considering the appropriateness of the value in use method applied by the Consolidated Entity to perform the annual test of goodwill for impairment against the requirements of the accounting standards. • Assessing the integrity of the value-in-use models used, including the determination of carrying values and the accuracy of the underlying calculation formulas. • forward-looking assumptions applied by the • Assessing the accuracy of previous Consolidated Consolidated Entity in its value-in-use models, including: Entity forecasts to inform our evaluation of forecasts incorporated in the models. − − forecast operating cash flows, growth rates and terminal growth rates which are influenced by subjective drivers such as FUM, FUA, securitisation and capital flows. These are difficult to predict as they rely on the Consolidated Entity’s expectation of future customer activity and market performance, which can be impacted by economic uncertainties arising from the ongoing geopolitical events; the Consolidated Entity operating across different geographies with varying pressures on market performance and capital flows, which increases the risk of an inaccurate forecast or wider range of possible outcomes; − discount rates, including CGU specific risk premiums, which are complicated in nature and vary according to the conditions and environment the specific CGU is subject to from time to time; and • we involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. • Comparing the forecast cash flows contained in the value-in-use models to Board approved forecasts and our inquiries with management of the Consolidated Entity for consistency. • Challenging the Consolidated Entity’s forecast operating cash flows and growth assumptions in light of the Consolidated Entity’s net FUM flows and the ongoing economic uncertainty arising from the geopolitical events in the current year. We compared forecast growth rates and terminal growth rates to published studies of industry trends and expectations. In doing so, we also considered the differences between industry trends and the Consolidated Entity’s operations and used our knowledge of the Consolidated Entity, its past performance, business, customers, committed future plans and our industry experience. • Independently developing a range of discount rates considered comparable with the Consolidated Entity, using publicly available market data for comparable entities, adjusted by CGU specific risk factors. • Performing sensitivity analysis by varying key assumptions, such as forecast growth rates, terminal growth rates and discount rates, within a reasonably possible range to identify CGUs at higher risk of impairment, assumptions at higher risk of bias and determining where to focus our further procedures. • Assessing the disclosures in the financial report using our understanding of the issues obtained from our testing, and against the requirements of the accounting standards. 130 Perpetual Annual Report 2022 167 Employee remuneration ($381m) Refer to Section 1-3 ‘Expenses’, Section 2-7 ‘Employee benefits’, Section 2-9 ‘Accrued Incentive Compensation’, and Section 5-6 ‘Share-based payments’ of the Financial Report The key audit matter How the matter was addressed in our audit Employee remuneration is a key audit matter due to: • the size of the balance relative to the Consolidated Entity’s results (63% of expenses); • complexities associated with varying share incentive programs and other employee benefits plans across the Consolidated Entity, which increases the risk of interpretational differences against the principles-based criteria contained in the accounting standards; Our procedures included: • Enquiring of the Consolidated Entity and inspecting a sample of share incentive programs and other employee benefit plans to understand the remuneration process, structure and various share incentive program offerings. • Assessing the Consolidated Entity’s accounting policy for share incentive program arrangements and working with our technical accounting specialists to assess the accounting treatment of complex employee benefit plans, against the principles based criteria in the accounting standards. • the involvement of senior team members to • Evaluating the Consolidated Entity’s external assess the valuation methodology, assumptions and inputs, such as the share price and vesting period, used by the Consolidated Entity and its external valuation experts in the valuation of share incentive rights granted during the year; • the involvement of technical accounting specialists to supplement senior team members in assessing the Consolidated Entity’s measurement of complex employee benefit plans under the Australian Accounting Standards; • forward-looking assumptions applied by the Consolidated Entity in valuing long-term employee benefit plans, including: − − forecast business growth assumptions, which are influenced by subjective drivers such as FUM flows, and are difficult to predict as they rely on the Consolidated Entity’s expectation of future customer activity and market performance; the Consolidated Entity operating across different geographies with varying pressures on market performance and FUM flows, which increases the risk of an inaccurate forecast or wider range of possible outcomes; and • largely manual calculation of equity remuneration expenses, which increases the risk of error. valuation expert’s scope of work, competence and objectivity with respect to their valuation of share incentive program rights granted during the year. • Assessing the external valuation expert’s methodology against industry practice and the requirements of the accounting standards. • Checking the grant date share price and vesting period used in the external expert’s valuation against the Consolidated Entity’s share price and share incentive program agreements. • Testing a statistical sample of equity remuneration expenses. We checked the various inputs to the Consolidated Entity’s manual calculation, such as grants, vests and forfeitures to underlying offer letters, share incentive program agreements and the grant date fair value calculated by the Consolidated Entity’s external expert. We recalculated the equity remuneration expense and compared this to the expense recognised by the Consolidated Entity. • Challenging the Consolidated Entity’s forecast business growth assumptions and judgement related to whether performance hurdles would be achieved in the measurement of complex employee benefit plans. We did this by comparing forecast growth rates to industry trends and expectations. • Assessing the Consolidated Entity’s disclosures of the key terms and valuation assumptions, as required by the accounting standards. 131 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 168 Independent Auditor’s Report To the shareholders of Perpetual Limited Other Information Other Information is financial and non-financial information in Perpetual Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s report was the Directors’ Report, Corporate Governance Statement, Remuneration Report, Operating and Financial Review and Securities Exchange and Investor Information. The Chairman’s report, 2022 Highlights, CEO’s Report, 2022 Group Results and Business Unit Overview and 2022 Sustainability Report are expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Consolidated Entity and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Consolidated Entity and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report. 132 Perpetual Annual Report 2022 169 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Perpetual Limited for the year ended 30 June 2022, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 13 to 50 of the Directors’ report for the year ended 30 June 2022. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Brendan Twining Partner Sydney 25 August 2022 133 Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 170 Securities exchange and investor information 2022 Annual General Meeting The 2022 Annual General Meeting of the Company will be held at Perpetual’s offices, Level 18, 123 Pitt Street, Sydney on Thursday 20 October 2022 commencing at 10:00am. Shareholders can also participate online. Securities exchange listing The ordinary shares of Perpetual Limited are listed on the Australian Securities Exchange (ASX) under the ASX code PPT, with Sydney being the home exchange. Substantial shareholders NAME State Street Corporation and its controlled entities Black Rock Inc. and subsidiaries Vanguard Group and its controlled entities Unmarketable parcels of shares NUMBER OF SHARES 3,789,604 3,742,578 2,836,386 % OF INTEREST DATE OF LAST SUBSTANTIAL SHAREHOLDER NOTIFICATION 6.68 6.62 5.00 22 July 2022 8 December 2020 10 May 2022 There are 574 shareholders holding less than a marketable parcel of ordinary shares, as at 3 August 2022. DISTRIBUTION SCHEDULE OF HOLDINGS AS AT 3 AUGUST 2022 NUMBER OF HOLDERS NUMBER OF SHARES 1 – 1,000 shares 1,001 – 5,000 shares 5,001 – 10,000 shares 10,001 – 50,000 shares 50,001 – 100,000 shares 100,001 and over shares Total 16,857 5,957 576 263 12 24 23,689 6,657,236 12,703,288 4,055,390 4,800,904 896,168 27,600,433 56,713,419 Perpetual Annual Report 2022171 NUMBER OF ORDINARY SHARES PERCENTAGE OF ISSUED CAPITAL 7,716,119 6,456,245 3,888,290 2,375,739 1,273,388 1,231,982 850,852 638,714 424,964 369,832 292,802 276,106 252,222 215,352 175,615 168,200 166,300 144,108 143,196 117,391 13.61% 11.38% 6.86% 4.19% 2.25% 2.17% 1.50% 1.13% 0.75% 0.65% 0.52% 0.49% 0.44% 0.38% 0.31% 0.30% 0.29% 0.25% 0.25% 0.21% 27,177,417 47.93% Twenty largest shareholders as at 3 August 2022 NAME HSBC Custody Nominees (Australia) Limited1 JP Morgan Nominees Australia Pty Limited1 Citicorp Nominees Pty Limited1 National Nominees Limited1 BNP Paribas Noms Pty Ltd (DRP)1 Washington H Soul Pattinson and Company Limited Mutual Trust Pty Ltd Queensland Trustees Pty Ltd2 (Long Term Incentive Plan) Carlton Hotel Ltd Enbeear Pty Ltd Pacific Custodians Pty Limited (PPT Plans Ctrl)1 BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C)1 First Samuel Ltd ACN 086243567 (ANF ITS MDA Clients A/C)1 BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd (DRP A.C)1 Netwealth Investments Limited (Wrap Services A/C) Citicorp Nominees Pty Limited (Colonial First State Inv A/C)1 J S Millner Holdings Pty Limited David Davidson Financial Services Pty Ltd (David Davidson Financial Services Unit) HSBC Custody Nominees (Australia) Limited (NT-COMNWLTH Super Corp A/C)1 Dixson Trust Pty Limited Total 1. Held in capacity as executor, trustee or agent. 2. The total number of shares held by Queensland Trustees Pty Ltd as trustee of the various Employee Share Plans is 649,425 shares. Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Report 172 Securities exchange and investor information Restricted securities Enquiries If you have any questions about your shareholding or matters such as dividend payments, tax file numbers or change of address, you are invited to contact the Company’s share registry office below, or visit its website at linkmarketservices.com.au or email PPT@linkmarketservices.com.au. Link Market Services Limited 1A Homebush Bay Drive Rhodes NSW 2138 Locked Bag A14 Sydney South NSW 1235 Perpetual Shareholder Information Line: Tel: 1300 732 806 Fax: (02) 9287 0303 Any other enquiries which you may have about the Company can be directed to the Company’s registered office, or visit the Company’s website at perpetual.com.au Principal registered office Level 18 123 Pitt Street Sydney NSW 2000 Tel: (02) 9229 9000 Fax: (02) 8256 1461 Company Secretary Sylvie Dimarco Website address: perpetual.com.au There are no securities subject to voluntary escrow. Unquoted securities The Company has the following unquoted rights on issue under its Employee Share Plans: – 930,145 performance rights For further information, please refer to Section 5-6 in the Financial Report. Other information Perpetual Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Voting rights Under the Company’s Constitution, each member present at a general meeting (whether in person, by proxy, attorney or corporate representative) is entitled: 1. on a show of hands to one vote; and 2. on a poll to one vote for each share held. If a member is present in person, any proxy of that member is not entitled to vote. Voting by proxy Voting by proxy allows shareholders to express their views on the direction and management of the economic entity without attending a meeting in person. Shareholders who are unable to attend the 2022 Annual General Meeting may appoint a proxy to vote on their behalf, either by accessing our Perpetual’s registry’s website at linkmarketservices.com.au and following the prompts, or by following the instructions in the proxy form posted on Perpetual’s website at perpetual.com.au/About/Shareholders. On-market buyback There is no current on-market buyback. Final dividend The final dividend of 97 cents per share will be paid on 30 September 2022 to shareholders entitled to receive dividends and registered on 9 September 2022, being the record date. Perpetual Annual Report 2022 173 Corporate Directory New South Wales Angel Place Level 18, 123 Pitt Street Sydney NSW 2000 Queensland Central Plaza 1 Level 15, 345 Queen Street Brisbane QLD 4000 Amsterdam Apollolaan 151, 1077AR Amsterdam Netherlands London 20 North Audley Street London W1K 6LX United Kingdom Australian Capital Territory Hong Kong Level 9, Nishi Building 2 Phillip Law Street Canberra ACT 2601 Victoria Level 28 and 29 Rialto South Tower, 525 Collins Street Melbourne VIC 3000 South Australia Level 11, 101 Grenfell Street Adelaide SA 5000 Western Australia Exchange Tower Level 29, 2 The Esplanade Perth WA 6000 Singapore 16 Collyer Quay #07-01 Singapore 049318 Chicago 155 N Wacker Drive Suite 4250 Chicago, IL 60606 USA Unit 22, Level 10 BOC Group Life Assurance Tower 139 Des Voeux Road Central Central Hong Kong TRILLIUM ASSET MANAGEMENT: Boston Two Financial Center 60 South Street, Suite 1100 Boston, MA 02111 USA San Francisco 160 Spear Street, Suite 250 San Francisco, CA 94105 USA Edinburgh 15 Queen Street Edinburgh EH2 1JE United Kingdom BARROW HANLEY GLOBAL INVESTORS: Dallas 2200 Ross Avenue, 31st Floor Dallas, TX 75201 USA Our performanceDirectors’ ReportOperating and Financial ReviewFinancial Reportperpetual.com.au

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