Too low, so Tower takes a hit

By GARETH VAUGHAN

More than $50 million was wiped from the market value of transtasman insurer and fund manager Tower after it disclosed profits well short of market hopes and did not resume dividends.

Its net profit for the year to September 30 was $54.6 million, a reversal of last year's $148.9 million loss, which followed asset writedowns and a $210 million rights issue.

But the earnings were inflated by $19.2 million of revaluations of insurance assets.

Market analysts had expected these revaluations to total $3 million.

Without these gains, Tower's core profit was $35.4 million, well short of analysts' forecasts of $47 million to $50 million profit.

The company said the North Island floods knocked $3 million off earnings while an IT asset writedown slashed another $4.4 million off the bottom line.

Analysts had predicted a 3c a share dividend, ending a two-year break.

But chief executive Keith Taylor said the board would consider resuming dividend payments only once it had completed the planned sale of its Australian Wealth Management business on the Australian Stock Exchange early next year.

Shares in the wealth management business will be distributed to Tower's 115,000 shareholders, most of whom are New Zealanders.

Tower's share price fell as much as 19c to an intra-day low of $2.11 before recovering to close 13c down at $2.17, valuing Tower at $895 million.

Alliance Capital's Andrew Bascand said: "The headline included a significant proportion of revaluations which, when extracted, leave a core profit result that was well beneath the consensus."

Another investor said the operating performance was poor and investors were angry about the result.

Investors were also disappointed the company did not give any guidance on future earnings.

This is expected next month when details of the Australian Wealth Management sale are revealed.

Taylor said the return to profitability was a good result after two years of losses. Tower was being rebuilt on a sustainable basis.

"There have been no quick fixes," he said. "We have done all the hard work and are now reaping the benefits of that."

Tower had been simplified from an "extraordinarily complex" business three years ago with 10 or 11 operating companies.

It now had three units - Tower Australia, Tower NZ and Australian Wealth Management.

Tower Australia's net profit was $23.2 million, reversing a $13.1 million loss last year, and AWM's profit rose to $16.7 million from $11.4 million.

Tower NZ's profit fell to $20.1 million from $23 million.

Asked if the simplified Tower structure, narrowed focus on insurance and improved financial performance made Tower a more attractive takeover target, Taylor said any listed company was a potential target.

"We want to perform so well that people won't be able to afford to take us over."

Tower was on the look-out for acquisitions at the "smaller end of the scale" in the transtasman life and general insurance markets.

Tower's assets under management rose $2.7 billion to $22.6 billion.