CENTURIA CAPITAL GROUP — Interim / Quarterly Report 2014

Feb 20, 2014

Centuria

CENTURIA CAPITAL LIMITED AND CONTROLLED ENTITIES

A.B.N. 22 095 454 336

INTERIM FINANCIAL REPORT FOR THE HALF YEAR ENDED 31 DECEMBER 2013

Directors' Report For the half year ended 31 December 2013

The directors of Centuria Capital Limited (the Company, CCL or Centuria) submit herewith the interim financial report of the Company and its controlled entities (the Group) for the half year ended 31 December 2013. In order to comply with the provisions of the Corporations Act 2001, the directors' report is as follows:

INFORMATION ABOUT THE DIRECTORS AND COMPANY SECRETARIES

Directors

The names of the Directors of the Company in office during or since the end of the half year are:

Name	Position	Appointment date
R.W. Dobson, LLB (Hons), LLM.	Independent Director and Chairman	28 November 2007
P.J. Done, BComm. FCA.	Independent Director	28 November 2007
J.R. Slater, Dip FS(FP), SA Fin	Independent Director	22 May 2013
J.C. Huljich, BComm.	Executive Director	28 November 2007
J.E. McBain, DipUrbVal.	Executive Director	10 July 2006
N.R.Collishaw, SA Fin, AAPI, FRICS	Executive Director	27 August 2013

Unless indicated otherwise, the Directors held their positions throughout the half year and up to the date of this report.

Company Secretaries

T.D. Reid, Dip. Bus. Studies (Acc), CA, Fdn FPA. Company Secretary since 10^th December 2007. M.J. Coy, BBus, CPA. Company Secretary since 19th October 2009.

PRINCIPAL ACTIVITIES

The principal activities of the Group during the course of the half year were the marketing and management of investment products (including friendly society investment bonds and property investment units), general insurance through an agency arrangement, mortgage management, property investment and management of Over Fifty Guardian Friendly Society Limited.

REVIEW OF OPERATIONS

The consolidated net profit of the Group for the period is \$4.999 million (2012: \$2.842 million) after providing for an income tax expense relating to shareholders of \$2.673 million (2012: \$2.370 million).

CHANGES IN STATE OF AFFAIRS

There was no significant change in the state of affairs of the Group during the half year.

DIVIDENDS

There were \$nil dividends paid during the half year ended 31 December 2013 (half year ended 31 December 2012: \$nil).

SUBSEQUENT EVENTS

On 21 February 2014, the Company declared an interim dividend of 1.25 cents per share franked at 100%. The dividend is expected to be paid on 27 March 2014.

Directors' Report For the half year ended 31 December 2013

AUDITOR'S INDEPENDENCE DECLARATION

The auditor's independence declaration is included on page 3 and forms part of the Directors' Report for the half year ended 31 December 2013.

ROUNDING OFF OF AMOUNTS

The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order, amounts in the Directors' report and the interim financial report are rounded off to the nearest thousand dollars, unless otherwise indicated.

Signed in accordance with a resolution of the Directors.

For and on behalf of the Board

R.W. Dobson Chairman

Sydney 21 February 2014

P.J. Done Director Chairman - Audit, Risk Management & Compliance Committee

Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001

To: the directors of Centuria Capital Limited.

I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 31 December 2013 there have been:

• $(i)$ no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and
• $(ii)$ no contraventions of any applicable code of professional conduct in relation to the review.

KPMG

Steven Gatt Partner

Sydney

21 February 2014

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

Independent auditor's review report to the members of Centuria Capital Limited

Report on the interim financial report

We have reviewed the accompanying interim financial report of Centuria Capital Limited (the Company) which comprises the condensed consolidated statement of financial position as at 31 December 2013, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the half year period ended on that date, notes 1 to 12 comprising a summary of significant accounting policies and other explanatory information and the directors' declaration of the Group comprising the Company and the entities it controlled at the half-year's end or from time to time during the half-year period.

Directors' responsibility for the interim financial report

The directors of the Company are responsible for the preparation of the interim financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such control as the directors determine is necessary to enable the preparation of the interim financial report that is free from material misstatement, whether due to fraud or error

Auditor's responsibility

Our responsibility is to express a conclusion on the interim financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the interim financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group's financial position as at 31 December 2013 and its performance for the half-year period ended on that date: and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As auditor of Centuria Capital Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of an interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

$\Delta$

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of Centuria Capital Limited is not in accordance with the Corporations Act 2001, including:

• a) giving a true and fair view of the Group's financial position as at 31 December 2013 and of its performance for the half-year period ended on that date; and
• b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

KPMG

Steven Gatt Partner

Sydney

21 February 2014

Directors' Declaration For the half year ended 31 December 2013

• In the opinion of the directors of the Company: $\mathbf{1}$ .
• the condensed consolidated interim financial statements and notes that are contained in pages 7 to $(a)$ 20 are in accordance with the Corporations Act 2001, including:
  • $(i)$ giving a true and fair view of the Group's financial position as at 31 December 2013 and of its performance for the six month period ended on that date; and
  • $(ii)$ complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and
• $(b)$ there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors.

For and on behalf of the Board

R.W. Dobson Chairman

Sydney 21 February 2014

P.J. Done Director Chairman - Audit, Risk Management & Compliance Committee

Condensed Consolidated Statement of Comprehensive Income For the half year ended 31 December 2013

Half year ended 31-Dec-13 31-Dec-12 Note \$'000 \$'000 Revenue 2(i) 20,505 20,722 Net revenue/(loss) from Benefit Funds 2(ii) 2,116 Other income 44 Total income 22,665 Finance costs 2(iii) (5,290) Employee benefits expense (5, 121) Administrative and other expenses (5,689) Unrealised gain/(loss) arising from fair value movements of 1(b) 3,223 derivative financial instruments Profit before tax 2(iv) 9,788 Income tax expense relating to shareholders (2,673) Income tax (expense)/benefit relating to Benefit Funds 2(ii) (2, 116) Total income tax expense (4,789)
			471
			753
			21,946
			(6, 472)
			(4, 349)
			(5, 442)
			5,683
			(2,370)
			(471)
			(2, 841)
	Profit/(loss) for the period	4,999	2,842
Other comprehensive income:
Gain/(loss) on cash flow hedges taken to equity 300			149
Income tax relating to components of other comprehensive income (90)			(45)
Other comprehensive income for the period (net of tax) 210			104
Total comprehensive income for the period 5,209			2,946
Earnings per share
Basic (cents per share) 6.5			3.5
Diluted (cents per share) 6.5			3.5

The Consolidated result aggregates the financial results of Centuria Capital Limited corporate entities and the Benefit Funds.

Condensed Consolidated Statement of Financial Position As at 31 December 2013

		As at
		31-Dec-13	$30 - Jun-13$
	Note	\$'000	\$'000
ASSETS
Cash and cash equivalents	12	13,590	9,285
Trade and other receivables		12,302	13,290
Financial assets at fair value through profit and loss		271	3,154
Other financial assets	3	173,963	185,848
Prepayments		1,247	1,382
Investment in associates		643	668
Plant & equipment		941	728
Assets in respect of Benefit Funds	9	421,627	435,459
Deferred tax assets		5,244	6,662
Income tax receivable		3,302	7,451
Intangible assets		53,026	53,109
TOTAL ASSETS		686,156	717,036
LIABILITIES
Trade and other payables		11,442	16,921
Borrowings	$\overline{4}$	137,943	147,298
Other liabilities		485	678
Derivative financial liabilities	7	12,321	20,141
Liabilities in respect of Benefit Funds	9	421,627	435,459
Provisions		1,189	1,129
TOTAL LIABILITIES		585,007	621,626
NET ASSETS		101,149	95,410
EQUITY
Contributed equity		89,164	88,634
Reserves		(171)	(381)
Profit reserves		11,389	6,390
Retained earnings		767	767
TOTAL EQUITY		101,149	95,410

The Consolidated result aggregates the financial results of Centuria Capital Limited corporate entities and the Benefit Funds.

Condensed Consolidated Statement of Cash Flows For the half year ended 31 December 2013

		Consolidated
		$31 - Dec-13$ \$'000	$31 - Dec-12$ \$'000
Cash flows from operating activities
Interest received		222	523
Management, sales, and acquisition fees received		13,971	10,040
Rent and other income received		3,175	2,256
Benefit Funds payments		(18, 449)	(24, 636)
Payments to suppliers and employees		(13, 478)	(11,611)
Income tax received/(paid)		783	(1,190)
Net cash provided by/(used in) operating activities		(13, 776)	(24, 618)
Cash flows from investing activities
Benefit Funds receipts		19,838	19,249
Payments for plant and equipment		(516)	(185)
Proceeds from investment in other financial assets			71
Proceeds from sale of National Leisure Trust assets			15,000
Net cash provided by/(used in) investing activities		19,322	34,135
Cash flows from financing activities
Loans to related entities		(354)	(92)
Share buy-back payments			(2,009)
Collections from mortgage holders		14,351	10,490
Repayment of borrowings - National Leisure Trust			(15, 530)
Repayment of borrowings - residential mortgages		(9, 577)	(6, 915)
Repayment of borrowings - other			(800)
Proceeds from sale of equity securities in Centuria Employee Share Funds		530
Interest paid on residential mortgage loans		(4,256)	(5,309)
Financing costs paid		(546)	(591)
Net cash provided by/(used in) financing activities		148	(20, 756)
Net increase/(decrease) in cash and cash equivalents		5,694	(11, 239)
Cash and cash equivalents at the beginning of the period		23,937	38,900
Cash and cash equivalents at the end of the period	12	29,631	27,661
Cash attributable to benefit funds		16,041	18,104
Cash attributable to shareholders		13,590	9,557
		29,631	27,661

The Consolidated result aggregates the financial results of Centuria Capital Limited corporate entities and the Benefit Funds.

Condensed Consolidated Statement of Changes in Equity For the half year ended 31 December 2013

I

					CONSOLIDATED
						Total
		Share	Retained	Profits	Cash flow	attributable to
		capital	earnings	reserve	hedge reserve	equity holders of the parent
	Note	$000 \text{ s}$	000.S	000.S	8'000	000.5
Balance at 1 July 2012		90,276	767		(667)	90,376
Profit for the period			2,842			2,842
Other comprehensive income for the period		٠			104	104
Total comprehensive income for the period			2,842		104	2,946
Share buy-back and cancellation Issued during the period:		(2,009)		I.	1	(2,009)
Balance at 31 December 2012		88,267	3,609		(563)	91,313
Balance at 1 July 2013		88,634	767	6,390	(381)	95,410
Other comprehensive income for the period Profit for the period			4,999		210	210 4,999
Total comprehensive income for the period			4,999		210	5,209
Issued during the period:
Employee share scheme		530				530
Transfer between reserves			(4,999)	4,999
Balance at 31 December 2013		89,164	767	11,389	(171)	101,149

The Consolidated result aggregates the financial results of Centuria Capital Limited corporate entities and the Benefit Funds.

$\overline{10}$

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

Corporate information

The interim financial report of Centuria Capital Limited for the half year ended 31 December 2013 was authorised for issue in accordance with a resolution of the Directors. Centuria Capital Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange.

Basis of Preparation 1.

Statement of compliance

The interim financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. The interim financial report does not include notes of the type normally included in an annual financial report and should be read in conjunction with the Group's annual financial report as at and for the year ended 30 June 2013.

This interim financial report was approved by the Directors on 21 February 2014.

The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order, amounts in the interim financial report are rounded off to the nearest thousand dollars, unless otherwise indicated.

Estimates

In preparing this consolidated interim financial report, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2013.

Significant accounting policies

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 30 June 2013. The following changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 30 June 2014.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 July 2013.

• AASB 10 Consolidated Financial Statements (2011) (a)
• AASB 13 Fair Value Measurement (b) $\bullet$

The nature and effect of the changes are further explained below:

(a) Consolidated Financial Statements

As a result of AASB 10 (2011), the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. AASB 10 (2011) introduces a new control model that is applicable to all investees, by focusing on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. In particular, AASB 10 (2011) requires the Group consolidate investees that it controls on the basis of de facto circumstances. This change had no significant impact on the Group's financial position or performance.

(b) Fair value measurement

AASB 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other AASBs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value measurements in other AASBs, including AASB 7 Financial Instruments: Disclosures. Some of these disclosures are specifically required in interim financial statements

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

1. Basis of Preparation Significant accounting policies (b) Fair value measurement (cont'd)

for financial instruments; accordingly, the Group has included additional disclosures in this regard (see Note 7).

In accordance with the transitional provisions of AASB 13, the Group has applied the new fair value measurement guidance prospectively, and has not provided any comparative information for new disclosures. The change has resulted in a \$3.2 million decrease in the fair value of the financial instruments. This has been reflected as an "Unrealised gain arising from fair value movements of derivative financial instruments" in the Condensed Consolidated Statement of Comprehensive Income.

$2.$ Revenue, income and expense items

The following is an analysis of the Group's revenue for the period:

	Half year ended
	$31 - Dec-13$ \$'000	$31 - Dec-12$ \$'000
(i) Revenue
Interest revenue - residential mortgages	6.723	7,571
Interest revenue - other	128	268
Dividend revenue		9
Management Fees from property funds	5,409	5,041
Sale performance fees	1.078	693
Property acquisition fees	1,146	466
Benefit Funds management fee #	5,437	6.018
Rental income		57
Commission received for insurance agency	583	599
	20,505	20,722

During the current period, the Group modified the Condensed Consolidated Statement of Comprehensive Income to present $#$ "Benefit Funds management fee" within "Revenue". In prior periods, this has been separately presented in the Condensed
Consolidated Statement of Comprehensive Income as "Centuria Life revenue". The comparative amounts have for consistency.

(ii) Centuria Life and Benefit Fund results

	Centuria Life	Benefit	$31-Dec-13$
	Limited	Funds	Total
Income	\$'000	\$'000	\$'000
Interest and dividend	145	5,872	6,017
Realised gains		2,794	2,794
Unrealised gains		5,676	5,676
Management fee income	5,292		5,292
Premiums (Discretionary Participation Features only)		2,880	2,880
	5,437	17,222	22,659
Expenses
Claims (Discretionary Participation Features only)		24,293	24,293
Net movement in policyholder liabilities		(13,071)	(13,071)
Management fee expense		4,187	4,187
Bad debts - mortgage loans		(303)	(303)
Management fund operating expenses	2,379		2,379
	2,379 (b)	15,106	17,485
Profit before tax	3,058	2,116 (a)	5,174
Income tax expense	(1, 274)	(2,116) (a)	(3,390)
Profit after tax	1,784		1,784

(a) These numbers have also been included in the Condensed Consolidated Statement of Comprehensive Income.

During the current period, the Group modified the Condensed Consolidated Statement of Comprehensive Income to present
"Management fund operating expenses" within "Employee benefits expense" and "Administrative and other ex $(b)$ periods, this has been separately presented the Condensed Consolidated Statement of Comprehensive Income as "Centuria Life expenses". The comparative amounts have been reclassified for consistency.

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

2. Revenue, income and expense items (cont'd) (ii) (b) Centuria Life and Benefit Fund results

$3.$

$\overline{4}$ .

	Centuria Life	Benefit	$31-Dec-12$
	Limited	Funds	Total
Income	\$'000	\$'000	\$'000
Interest and dividend	271	9,952	10,223
Realised (losses)		(12, 525)	(12, 525)
Unrealised gains/(losses)		20,887	20,887
Management fee income	5,747		5,747
Premiums (Discretionary Participation Features only)		3,044	3,044
	6,018	21,358	27,376
Expenses
Claims (Discretionary Participation Features only)		24,373	24,373
Net movement in policyholder liabilities	۰	(16,600)	(16,600)
Management fee expense		4,740	4,740
Bad debts - mortgage loans		8,374	8,374
Management fund operating expenses	2,487		2,487
	2,487	20,887	23,374
Profit before tax	3,531	471 (a)	4,002
Income tax (expense)/benefit	(1,607)	(471) (a)	(2,078)
Profit after tax	1,924		1,924

(a) These numbers have also been included in the Condensed Consolidated Statement of Comprehensive Income.

(iii) Finance costs	31-Dec-13 \$'000	$31-Dec-12$ \$'000
NAB working capital facility	(619)	(699)
Reverse mortgage facility	(4, 459)	(5,309)
Other finance costs	(212)	(464)
Gain/(loss) arising on derivatives in a designated fair value hedge accounting	4,968	(638)
Loss/(gain) arising on fair value movements to residential mortgages in a designated fair value hedge	(4,968)	638
	(5, 290)	(6, 472)
(iv) Profit/(loss) before income tax expense	31-Dec-13 \$'000	$31 - Dec-12$ \$'000
The amount in the income statement is represented by:
- Profit before income tax expense relating to shareholders	7,672	5,212
- Profit before income tax expense relating to benefit funds	2,116	471
	9,788	5,683
Other financial assets - Residential Mortgages
	31-Dec-13	$30 - Jun-13$
	\$'000	\$'000
Residential Mortgages
- at cost	165,718	172,740
- at fair value attributable to interest rate risk	8,245	13,108
	173,963	185,848
Borrowings
	31-Dec-13	$30 - Jun-13$
	\$'000	\$'000
NAB working capital facility (i)	12,000	12,000
Residential mortgage bill facilities and notes - secured (ii)	125,943	135,298
	137,943	147,298

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

4. Borrowings (cont'd)

Terms and conditions relating to the working capital facility and bill facilities above are:

• Centuria has a financing facility with the National Australia Bank (NAB) fully drawn to \$12 million at $(i)$ 31 December 2013. The current facility limit of \$12 million (30 June 13: \$12 million) is required to be amortised at a rate of \$800,000 per quarter. NAB has granted a waiver of the amortisation requirement for the quarters ended May 2013, August 2013 and November 2013. The facility maturity date was extended during the period to 31 March 2015. \$3.2 million of the NAB working capital facility is a current liability, \$8.8 million is a non-current liability.
• $(ii)$ The Group has \$125.9 million (30 June 2013: \$135.3 million) non-recourse notes on issue to the ANZ Bank secured over the residential mortgages held in Senex Warehouse Trust No.1 (a subsidiary of the Group) maturing on 28 February 2015. The facility limit (\$170 million) is reassessed every 6 months with a view to reducing the facility (and therefore the overall facility cost) in line with the reduction in the residential mortgage book. Under the facility agreement, surplus funds (being mortgages repaid (including interest) less taxes, administration expenses and any hedge payments) are required to be applied against the facility each month. During the 6 months to 31 December 2013, \$9.4 million surplus funds have been applied against the facility (6 months to 31 December 2012: \$7.7 million).

5. Dividends

There were no dividends paid during the half year ended 31 December 2013 (half year ended 31 December 2012: \$nil).

6. Contingent assets, liabilities and commitments

There are no material contingent liabilities, contingent assets or commitments.

7. Financial Instruments

The tables below analyse recurring fair value measurements for financial assets and financial liabilities, together with the carrying amounts in the Condensed Consolidated Statement of Financial Position. The fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows.

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
• Level 3: unobservable inputs for the asset or liability

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

7.	Financial Instruments (cont'd)
		Measurement Basis	Fair value Hierarchy	Carrying Amount \$'000	Fair Value \$'000
	31-Dec-13
	Financial asssets
	Cash and cash equivalents	Amortised cost	Not applicable	13,590	13,590
	Trade and other receivables	Amortised cost	Not applicable	12,302	12,302
	Financial assets at fair value through profit and loss	Fair value	Level 2	271	271
	Other financial assets - residential mortgage loans - at cost Other financial assets - residential mortgage loans fair value	Amortised cost	Not applicable	165,718	217,646
	attributable to interest rate risk	Fair value	Level 3
				8,245 200,126	8,245 252,054
	Financial liabilities
	Trade and other payables	Amortised cost	Not applicable	6,288	6,288
	Borrowings	Amortised cost	Not applicable	137,943	137,943
	Derivative financial liabilities - non fixed-for-life interest rate swaps	Fair value	Level 2	1,774	1,774
	Derivative financial liabilities - fixed-for-life interest rate swaps	Fair value	Level 3	10,547	10,547
				156,552	156,552
		Measurement	Fair value	Carrying	Fair
		Basis	Hierarchy	Amount	Value
	$30 - Jun-13$			\$'000	\$'000
	Financial asssets
	Cash and cash equivalents	Amortised cost	Not applicable	9,285	9,285
	Trade and other receivables	Amortised cost	Not applicable	13,290	13,290
	Financial assets at fair value through profit and loss	Fair value	Level 2	3,154	3,154
	Other financial assets - residential mortgage loans - at cost	Amortised cost	Not applicable	172,740	234,645
	Other financial assets - residential mortgage loans fair value
	attributable to interest rate risk	Fair value	Level 3	13,108	13,108
				211,577	273,482
	Financial liabilities
	Trade and other payables	Amortised cost	Not applicable
	Borrowings	Amortised cost	Not applicable	9,933 147,298	9,933 147,298
	Derivative financial liabilities - non fixed-for-life interest rate swaps	Fair value	Level 2	1,818	1,818
	Derivative financial liabilities - fixed-for-life interest rate swaps	Fair value	Level 3	18,323	18,323
				177,372	177,372

The Group determines Level 2 fair values for financial assets and liabilities without an active market based on broker quotes.

Level 2 fair values for simple over-the-counter derivatives are based on broker quotes as well. Those quotes are tested for reasonableness by discounting expected future cash flows using market interest rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the entity and counterparty when appropriate.

Details of the determination of Level 3 fair value measurements during the six months ended 31 December 2013 are set out below:

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

7. Financial Instruments (cont'd)

Reconciliation of Level 3 fair value measurements of financial assets and liabilities

Financial assets/(liabilities)	Fair value through profit or loss		Total
	(Residential (Fixed For Life Swaps)
	mortgage fixed for life loans fair value attributable to interest rate risk)
	\$'000	\$'000	\$'000
Balance at 1 July 2013	13,108	(18, 323)	(5,215)
Total gains/(losses): $-$ in profit or loss	(4, 863)	$7,776$ (i)	2,913
Balance at 31 December 2013	8.245	(10, 547)	(2,302)

(i) Fixed for life swap fair value movement of \$7.8 million includes a \$3.2 million unrealised gain attributable to credit risk adjustments.

Significant assumptions used in determining fair value of Fixed for Life swaps

The objective of Fixed for Life interest rate swap contracts is to hedge the exposure to changes in fair value of Fixed for Life residential mortgage loans caused by interest rate fluctuations.

The fair value of the Fixed for Life residential mortgage loans and Fixed for Life interest rate swaps are calculated using a valuation technique based on assumptions that are not supported by prices from observable current market transactions in the same instrument and not based on available observable market data due to the illiquid nature of the instrument. Discounted cash flow analysis using the applicable yield curve out to 15 years is used as the best proxy for interest rates beyond 15 years. Appropriate credit risk spreads have been included in the valuation model when appropriate.

Mortality rates for males and females have been assumed to be consistent with 2013 Life Tables, adjusted in accordance with Towers Watson's report "Reverse mortgage mortality basis" dated February 2013. Mortality improvements of 3% p.a. are assumed starting at age 70. The improvement factor tapers down to 1% p.a. at age 90 and then zero at age 100. Joint life mortality is calculated based on last death for loans with joint borrowers. 50% of residential mortgage loan portfolio consists of joint lives.

Interest rate sensitivity

The following table illustrates the effect on profit after tax if interest rates had been 1% higher or lower and all other variables were held constant in determining the fair value for fixed for life swaps.

	Change in variable	Effect On Profit after tax (decrease)/Increase
		$31 - Dec-13$ \$'000
Consolidated
Interest rate risk	Increase 1%	(841)
Consolidated
Interest rate risk	Decrease 1%	1.039

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

8. Operating Segments

The Group has seven reportable segments, as described below, which are the divisions used to report to the Board for the purpose of resource allocation and assessment of performance. For each of the divisions, the Group's CEO (the chief operating decision maker) reviews internal management reports on a monthly basis. The following summary describes the operations in each of the Group's reportable segments:

• (a) Centuria Life management of Benefit Funds.
• (b) Benefit Funds a range of financial products, including single and multi-premium investments.
• (c) Insurance general, home and contents, motor vehicle and travel insurance agency.
• (d) Residential Mortgages provides debt funding secured by first mortgages over residential property.
• (e) Property Funds Management Centuria Property Funds Limited and Centuria Strategic Property Limited.
• (f) Other Commercial Mortgages and Property Investments.
• (g) Corporate.

Prior to 1 January 2013, the Group was organised into eight business units:

• (a) Centuria Life management of Benefit Funds.
• (b) Benefit Funds a range of financial products, including single and multi-premium investments.
• (c) Insurances general, home and contents, motor vehicle and travel insurance agency.
• (d) Residential Mortgages provides debt funding secured by first mortgages over residential property.
• Mortgageport investment in money manager and mortgage broker (sold during the year). $(e)$
• $(f)$ Property Investments - investment in National Leisure Trust.
• (g) Property Funds Management Centuria Property Funds Limited and Centuria Strategic Property Limited.
• (h) Corporate.

Comparative information for the half year ended 31 December 2012 has been restated to reflect the seven business units used to report to the Group's CEO from 1 January 2013. Commercial Mortgages, Mortgageport and Property Investments have been organised into "Other" as these segments are no longer reportable segments. The measurement basis for the segment profit or loss in both periods remains the same.

Information regarding these segments is presented below. The accounting policies of these reportable segments are the same as the Group's accounting policies.

				Half year ended 31 December 2013
	Life Centuria \$'000	⊜ Funds Benefit \$'000	Insurance \$'000	Residentia Mortgages \$'000	Funds anagement Property Σ \$'000	Other \$'000	Corporate \$'000	Consolidated \$'000
Revenue
Interest, dividends and other investment income	145			6,723	44	$\overline{\phantom{a}}$	84	6,996
Management and establishment fees	5,292				7,633		$\omega$	12,925
Rent and other		2,116	583	22	14		8	2,744
Total segment revenue	5,437	2,116	583	6,745	7,691		92	22,665
Profit/(loss) before tax	3,058	2,116	450	4,785	2,463		(3,085)	9,788
Income tax (expense)/benefit	(1,274)	(2,116)	(135)	(1, 436)	(785)	(1)	958	(4,789)
Profit/(loss) for the period								4,999

(i) Net revenue received from the Benefit Funds has been presented as a single line item. See note 2(ii) for further information.

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

8. Operating Segments (cont'd)

					Half year ended 31 December 2012
	Life Centuria \$'000	Ξ Funds Benefit \$'000	Insurance \$'000	Residential Mortgages \$'000	Funds anagement Property Σ \$'000	Other \$'000	Corporate \$'000	Consolidated \$'000
Revenue
Interest, dividends and other investment income	271		$\blacksquare$	7,571	122	6	140	8,110
Management and establishment fees	5,747			-	6,200			11,947
Rent and other		471	599	74	19	464	262	1,889
Total segment revenue	6,018	471	599	7,645	6,341	470	402	21,946
Profit/(loss) before tax	3,531	471	458	1,602	1,793	539	(2,711)	5,683
Income tax (expense)/benefit	(1,607)	(471)	(137)	(481)	(639)	(376)	870	(2, 841)
Profit/(loss) for the period								2,842

(i) Net revenue received from the Benefit Funds has been presented as a single line item. See note 2(ii) for further information.

9. Assets and liabilities in respect of Benefit Funds

$31 - Dec-13$	$30 - Jun-13$
	\$'000
16,041	14,652
456	2.086
400.111	411,176
5,019	7,051
	494
421,627	435,459
$\blacksquare$	59
420,270	435,311
1.357	89
421,627	435,459
	\$'000

(i) Included within policyholders' funds at 31 December 2013 is \$13.3 million (30 June 2013: \$17.6 million) of reserves of which \$5.8 million (30 June 2013: \$5.8 million) is seed capital repayable to Centuria Life Limited.

10. Subsequent events

On 21 February 2014, the Company declared an interim dividend of 1.25 cents per share franked at 100%. The dividend is expected to be paid on 27 March 2014.

Notes to the Condensed Consolidated Interim Financial Statements For the half vear ended 31 December 2013

11. Related party transactions
	$31 - Dec-13$ \$'000	$31 - Dec-12$ \$'000
Aggregate amounts received from related parties:
Management fees:
Over Fifty Guardian Friendly Society Limited	699	658
Centuria Life Limited Benefit Funds	4.549	5,089
Property Trusts managed by Centuria	7.676	6.200
	12.924	11.947

Management fees are charged to controlled entities in accordance with various agreements.

Terms and conditions of transactions with related parties

Investments in Benefit Funds held by certain directors are made on the same terms and conditions as all other persons. Directors and director-related entities received the same returns on these investments as other policyholders.

The parent entity and its related entities entered into transactions, which are insignificant in amount, with directors and their director-related entities in their domestic dealings and are made in arm's length transactions at normal market prices and on normal commercial terms. These are:

• receipt of general insurance premiums; and
• payment of general insurance benefits.

CCL pays some expenses on behalf of related entities and receives a reimbursement for these payments. There are no loans on non-market terms between the Centuria Capital Group and the Benefit Funds.

Transactions between CCL and its related parties

The following transactions occurred during the period and balances exist at period end between the Group and its related parties:

• CCL has a receivable from related parties consisting of:
• \$1.0m receivable from Centuria Diversified Property Fund earning 10% p.a.
• $\overline{a}$ \$0.2m receivable from Over Fifty Guardian Friendly Society Limited.
  • \$0.3m receivable from Strategic Property Holdings Pty Ltd ATF Aristocrat JV.
• At 31 December 2013, Centuria Life Limited (CLL), being a subsidiary of CCL, has a seed capital investment of \$5.8 million (present valued at \$4.9 million) in the Income Accumulation Fund which is managed by CLL (30 June 2013: \$5.8 million).
• Australian Property and Mortgage Bond Fund holds:
• 1,080,916 units in Centuria 10 Spring St Fund representing 1.82% of total units. The fund sold 19,084 units during the half-year ended 31 December 2013.
• 458,635 units in Centuria 8 Australia Avenue Fund representing 2.42% of total units.
• Centuria Growth Bond Fund:
• Holds 1,000,000 units in Centuria 8 Australia Avenue Fund representing 5.27% of total units.
• Holds 9,843,702 units in Centuria Direct Property Fund representing 22.74% of total units.
• Holds 11,119,259 units in Centuria Diversified Property Fund representing 13.43% of total units.
• Holds 3,113,000 units in Centuria 131-139 Grenfell Street Fund representing 28.92% of total units.
• Has sold 1,700,000 units in Centuria 10 Spring Street Fund during the half year.
• Centuria Income Accumulation Fund:
• Holds 6,914,484 units in Centuria Direct Property Fund representing 15.98% of total units.
• Has \$5.7 million loaned to Strategic Property Holdings Pty Ltd ATF Aristocrat JV.
• Has \$8.9 million loaned to Centuria 4-8 Woodville Street Fund.

Notes to the Condensed Consolidated Interim Financial Statements For the half year ended 31 December 2013

11. Related party transactions (cont'd)

• Centuria High Growth Fund sold 700,000 units in Centuria 10 Spring Street Fund during the half year.
• Centuria Balanced Fund sold 700,000 units in Centuria 10 Spring Street Fund during the half year.
• Other transactions include \$5.0 million tax payable to the Benefit Funds, \$0.7 million of management fees $\bullet$ receivable from the Benefit Funds, and \$3.1 million of management fees and other receivables from property funds managed by Centuria.

12. Reconciliation of cash and cash equivalents

$31 - Dec-13$	$30 - Jun-13$
\$'000	\$'000
13.590	9.285
16.041	14.652
29,631	23,937

• (a) Included in cash and cash equivalents attributable to shareholders are amounts held by Centuria Life Limited (\$6.48 million) and Senex Warehouse Trust No.1 (\$4.15 million) which is not readily available for use (30 June 2013 \$4.80 million and \$3.24 million, respectively).
• (b) Under AASB 107 Statement of Cash Flows, the income, expenses, assets and liabilities of the Benefit Funds are included in the Group's statement of comprehensive income and statement of financial position and statement of cash flows. As a result, the Benefit Funds' cash is included in the Group's assets with a corresponding amount included in liabilities. The shareholders of the Group have no rights over the cash held in the Benefit Funds.