CENTURIA CAPITAL GROUP — Annual Report 2008

Sep 25, 2008

==> picture [596 x 26] intentionally omitted <==

==> picture [596 x 27] intentionally omitted <==

==> picture [596 x 27] intentionally omitted <==

==> picture [596 x 26] intentionally omitted <==

==> picture [596 x 27] intentionally omitted <==

Over Fifty Group Chief Executive’s Overview for year ending 30 June 2008

I accepted the position of Chief Executive Officer of the Over Fifty Group (“OFG”) in February 2008.

Having been an executive director of OFG since July 2006 and a substantial shareholder, I believe that my interests and those of your other directors are closely aligned with other shareholders.

I am pleased to report that as at 30 June 2008 your board and senior management represent a combined shareholding in OFG of 16 per cent of the OFG shares on issue and this stake has increased since reporting date.

Global and Local Financial Market Conditions

==> picture [39 x 352] intentionally omitted <==

A lot of company reports I have read lately have dealt with the serious problems experienced over the last year in world investment markets. Many of these reports have been designed to deflect attention away from poor company performances, especially in the management of shareholder funds.

I am pleased I left the preparation of this report until relatively late. Up until as recently as a fortnight ago, we had witnessed a significant tightening of world credit in response to the sub-prime lending crisis in the US. Reckless lending on poor quality assets to borrowers with insufficient ability to repay has collected major scalps;

• a massive decline in the availability of credit internationally and, as a result, major increase in the cost of funds

• the US Treasury-led takeover of major US investment bank Bear Sterns by JP Morgan and the effective nationalising of the two largest mortgage guarantors in the US.

These were rare, extremely significant financial events, however the events in the middle of September have made all that preceded them look insignificant.

In summary, one top US investment bank collapsed (Lehman Brothers), Merrill Lynch was taken over, Warren Buffet became a major shareholder of Goldman Sachs and the US Government is approving a $US700 billion package to acquire sub prime debt instruments in an effort to unfreeze international financial markets.

Over Fifty Group Limited ABN 22 095 454 336 call 1300 50 50 50 fax (03) 9629 3397 visit Level 30, 367 Collins St, Melbourne, Vic 3000. post GPO Box 695, Melbourne, Vic 3001

The damage has not been confined to the US, with major UK based banker HBOS hastily merged with Lloyds TSB and other financial institutions forced into similar moves to save themselves.

Locally, we have seen the ASX All Ordinaries Index slump about 42% over the 12 months to September 2008, despite the continued strength of the resources sector.

How does OFG fit into this picture?

Our share price performance has been disappointing even against this backdrop. I believe that this has been due to a number of factors that we are addressing, including:

• The market for companies with small capitalised values (“small caps”), such as OFG, has been hardest hit by local market conditions

• The market has viewed negatively the history of OFG unsuccessfully entering a large number of business areas outside its core activities.

==> picture [39 x 352] intentionally omitted <==

• The general global and local financial conditions

• What I refer to as a “wait and see” attitude by the market to gauge if the new board and management can re-focus OFG.

To suggest that the continuing difficult international market conditions will not affect the operation of most Australian companies is unrealistic. We are in for a year of tough business conditions and at the end of this period the companies which concentrate on their core activities will survive and be rewarded with opportunities presented in this climate.

The performance of our Friendly Society bonds has also been affected by these financial conditions. An independent survey of Australian superannuation funds showed that in the 12 months to June 2008, the median return was negative 6.4%. Consequently, Over Fifty bonds with a higher exposure to equity investments were more adversely affected than others.

As managers we also took the opportunity as early as April 2007 to refocus some of the capital guaranteed bond investment strategies away from commercial mortgages and towards more stable investment returns, such as fixed interest and direct property investment – one of our core strengths.

I ask Friendly Society members to remember that there will be infrequent periods when unsatisfactory results are experienced as a result of global conditions. The returns from the OFG Friendly Societies have held up reasonably well in the backdrop of the financial conditions we are experiencing and in comparison with our competitors.

That is not to say that we shouldn’t do more to make returns more robust and our investment committees and external asset consultants are well aware of their responsibilities in this regard.

The board and management at OFG have taken a number of strategic actions to improve the performance of OFG and shareholder wealth. These include:

• 1) A focus on the strong reliable cash flows generated by managing the $2 billion worth of assets we control.

• 2) Cessation or disposal of unprofitable divisions.

• 3) Reduction of staffing and head office expenses. 4) Implementing sale programme to liquidate legacy property assets on balance sheet

==> picture [39 x 352] intentionally omitted <==

• 5) Manage commercial loan book to expiry and repatriate capital to balance sheet

By trimming our sails in these difficult conditions, we are in a great position to move quickly to identify and act on a range of great opportunities opening up to OFG over the next year.

Financial Results

Firstly, many of you will have found it impossible to decipher the financial reports included in past annual reports. The reason for this is that the current Australian accounting standards require OFG to consolidate the accounts of all the Friendly Society benefit funds with OFG’s corporate accounts. The result is a complying but virtually meaningless set of audited statutory accounts.

I will break out the major figures here but shareholders can get a more detailed results presentation by calling the company on freecall 1300 50 50 50 or visiting our website www.overffity.com.au.

It is important to remember that financial results fall into two categories, results of yearly trading activities and the effects of one-off items. Accounting standards require all companies to take one-off balance sheet adjustments to the profit and loss account, such as revaluations of assets held by the

company. It is worthwhile to look at these adjustments to discover the true annual trading performance of the group. Most companies refer to this as “normalised results”.

Analysis of OFG Profit and Loss (excluding Friendly Society Benefit Funds)

==> picture [39 x 352] intentionally omitted <==

	2008	2007 % Change	2007 % Change
	$000’s	$000’s
Normalised by major division
Property Funds Management	4,304	5,824	-26.1%
Property Investments	319	3,097	-89.7%
Reverse Mortgages	(1,456)	(3,465)	58.0%
Friendly Society	11,709	12,963	-9.7%
Commercial Mortgages	4,213	2,756	52.9%
Corp	(5,803)	(9,137)	36.5%
Other divisions	1,625	1,199	35.5%
Normalised EBIT	14,912	13,237	12.6%
Finance costs CorporateDebt	(1,526)	(928)
Tax(expense)reported	(1,882)	(4,864)
Tax (expense) on one off
adjustments	(3,486)	(280)
Normalised NPAT	8,018	7,165	11.9%
Write off of Bad Mortgage Debt
(after Tax)	4,399	2,650
Write down of investment in
Associate (aftertax)	3,000	-
Fair value in investments (after tax)
	2,513	(2,699)
Other expenses - AGM exp (after
tax)	813	-
Other expenses - Branding (after
tax)	-	700
Reported NPAT (2,707)		6,514 -141.6%

EBIT - Earnings before Interest and Tax

NPAT – Net Profit after Tax

This analysis indicates the following;

• Prior to adjustments, Normalised NPAT increased by 11.9% for 2008

• Commercial Mortgages – write-offs and provisions for bad debts of $4.4 million after tax were taken into the profit and loss account. The practice of OFG lending balance sheet monies has been very

damaging to recent reported profits and has been discontinued. The board and management are working through the few remaining loans to maturity.

• The current board has examined the existing investment in 50% owned associated company Mortgageport, a mortgage provider, and has written down the value of this holding by $3 million to approximately $5 million. This write-down also flows to the profit and loss account.

• The current board has examined legacy property investments held on the company’s balance sheet for re-sale and believes that a negative impairment adjustment of $2.51 million after tax should be made - again flowing through to the profit and loss account.

• Finally, an abnormal expense item of $813,000 after tax has been isolated, which is the expenses incurred by the previous board and management relating to the November 2007 “strategic review” and one-off Annual General meeting expenses. This is considered a “oneoff” expense because it is not anticipated that the current board would contest orderly director nominations in a similar manner.

==> picture [39 x 352] intentionally omitted <==

I hope this analysis makes it clear that the earning ability of the company has been very strong for the financial year to June 2008 and that the factors causing the decrease in reported profit were mainly adjustments to holding values for legacy assets held on the OFG balance sheet.

While we are concerned that these adjustments are large in comparison to total profit, it would be wrong of the board to not reflect the reality of the position.

Dividend and Earnings

OFG intends distributing a final, fully franked dividend of 3 cents per share, which will make up a full year dividend of 8 cents per share for the financial year to 30 June 2008.

Earnings per share for the 12 months to 30 June 2008 on a normalised basis were 13.6 cents, compared to 12.3 cents in the corresponding period in 2007.

After allowance for the effect of balance sheet adjustments, as detailed above on the reported profit and loss account, the 2008 earnings were negative 4.6 cents per share. After consideration of the one-off nature of all the balance

sheet adjustments and the underlying profitability of the group, the board has declared a final dividend of 3 cents per share.

Dividend Reinvestment Plan

The dividend reinvestment plan, suspended by the previous board and management, has been reinstated and this popular scheme is now being utilised by many shareholders.

New Board and Management Teams

You elected several new directors in November 2007 and the newly composed board has taken a number of steps to improve the prospects of OFG. In summary the major initiatives up to 30 June 2008 included:

• A major focus on the core activities of Friendly Society management and Property Funds Management.

• Sale of the small, non-core financial planning division.

==> picture [39 x 352] intentionally omitted <==

• Acquisition of a 51% interest in Eclipse Property group, a profitable, property funds manager with a business strategy aligned to a core OFG activity.

• A detailed analysis of the entire business and the consequent need to write-down the value of the assets, as described above.

• Implementation of a programme to reduce corporate expenses by 36% in the year to 30 June 2008, with further falls planned this year.

Since June 2008 further initiatives include:

• Suspension of lending in the Reverse Mortgage business unit.

• Continued management of commercial loans held on balance sheet towards maturity, allowing repatriation of funds to the balance sheet ($16.7 million as at 30 June, 2008).

• Commencement of the sale process of the three legacy property assets held on the OFG balance sheet.

• Reduction in total staff numbers from 71 as at 1 July 2007 to 45 as at the date of this report.

Funds under Management

With the acquisition of Eclipse Property Group, OFG’s funds under management have increased a significant 14% to $2.02 million.

Business Update - Growth in FUMA

Over Fifty Group - Funds Under Management and Administration

==> picture [39 x 352] intentionally omitted <==

==> picture [369 x 176] intentionally omitted <==

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

2500
$2,019 m
$1,777 m
2000
199
$1,137m 120
1500 $1,087 m
921
5 47 660
1000 77 80
500 1005 1010 997 899
0
2005 2006 2007 2008
Friendly Society Property Trusts Reverse Mortgages
$m
----- End of picture text -----

There is a plenty of speculation regarding the ability of Australian funds managers to retain existing funds under management and attract new funds. OFG is not immune from this negativity, however our track record is very positive, as seen in the foregoing table.

It must be remembered that the value of friendly society funds under management was impacted significantly by a reduction in the value of Australian shares held by the benefit funds.

It is our view that adhering to the simple policy of concentrating on our core activities will allow us to acquire other well aligned fund managers at bargain price levels and physical assets at record low prices.

The OFG board and management believe that the next 12 months will be challenging for all companies, however we have a dynamic plan to grow the company and shareholder wealth.

Personnel at OFG

One of key executives at OFG, Terry Reid, who has worked in the company for 18 years and is currently Chief Financial Officer and Company Secretary, has taken up the post of General Manager – Friendly Societies, effective October 2008. Terry is a qualified chartered accountant with an in-depth knowledge of the Friendly Society business and is well known to members.

Terry will continue as company secretary in the Melbourne head office in conjunction with his Friendly Society activities.

I am also pleased that we have been able to appoint a new Chief Financial Officer to OFG from within our existing staff. Matthew Coy has been appointed to this position, effective October 2008. Matthew is the current CFO of Century Funds Management, our main property funds management division. Prior to this he was CFO of Bankminster Holdings and before this CFO of Colliers Group.

==> picture [39 x 352] intentionally omitted <==

Matthew is a qualified certified practicing accountant with 25 years business and accounting experience and his appointment to this position strengthens our key executive team enormously.

Finally, in November 2007 Jason Huljich was appointed to the OFG board. Jason is an extremely talented executive who holds the position of General Manager – Property for the group’s entire property funds management and direct property holdings – currently $920 million.

In a departure from previous practise, the board now has direct reports heading its two core business’s acting as director and company secretary. This is the best way that the board can align itself with management and these three key executives all hold OFG shares.

Property held on Balance Sheet

The current board has written down the value of legacy properties held on OFG’s balance sheet by $2.513 million after tax such that they were held at fair value as at 30 June 2008. This was considered a necessary step.

Business Outlook

Friendly Societies Strategies

The following summarised strategies are designed to optimise revenues from Friendly Society activities;

• Install Terry Reid as General Manager – Friendly Societies

• Refocus on Friendly Societies as a core OFG business

• Relaunch stalled “blueprint” investment bond

• Implement “Flexible” bond series allowing members to switch bonds tax effectively

• Research new investment bond products

• Ensure Investment Committees and external asset consultants optimise member returns

Property Funds Management Strategies

The following summarised strategies are designed to optimise revenues from Property Funds Management activities;

==> picture [39 x 352] intentionally omitted <==

• Protect fee income stream from $920 million unlisted property trust portfolio currently under management

• Increase distribution of our flagship diversified unlisted property funds

• to the investment advisory community

• Establish new opportunistic unlisted property funds to take advantage of any one-off property acquisition opportunities where market conditions pressure vendors to sell below fair value.

Conclusion

This letter only touches briefly on the major aspects of OFG’s business. We have also prepared a Results Presentation which gives far greater detail and will be posted on the OFG website as well as the ASX company announcements platform. This includes reference to other smaller business units and discontinued operations and a copy can also be made available to you by calling our Investor Services Team on Freecall 1300 50 50 50.

==> picture [91 x 59] intentionally omitted <==

John McBain Chief Executive Officer