Upbeat Tower eyes `strategic' allies

By RICHARD BRADDELL

WELLINGTON - Financial services group Tower hopes to announce strategic alliances or acquisitions in coming weeks that could significantly affect medium-term growth.

The group yesterday reported a $38.6 million net profit for the six months to March, up from a pro forma $37.7 million in the same half last year.

Chief executive James Boonzaier said the kind of business alliances he had in mind would go deeply into the organisation.

But he was resolute in maintaining his no-comment stance on market speculation that Tower had been lined up for takeover by another business.

Mr Boonzaier said that Tower would be seeking alliances aimed at gaining scale and distribution, technology skills and risk-sharing.

And while Tower had little interest in owning a bank, he saw an alliance with a bank - potentially even with the new NZ Post people's bank - as attractive.

Over the six months, Tower continued to enjoy strong premium and asset growth.

It had total assets at March 31 of $16.6 billion, up from $15.8 billion in October 1999.

First-half revenue of $896 million compared with $1.3 billion in the previous full year.

Executives emphasised that comparison between periods was problematic given that Tower was not demutualised in last year's first half.

The picture had been further complicated by the material impact of the takeover of FAI Life in Australia.

Mr Boonzaier said that much of a 33 per cent rise in expenses, to $189 million, on the previous comparable six months was due to the acquisition of FAI Life.

But operating savings from its integration would amount to about $11 million this year.

Recent group restructuring would slash a further $5 million to $6 million from costs.

Australia's Ralph Report into the taxation of life companies has been a factor in a redesign of many products in both Australia and New Zealand.

But Mr Boonzaier said Tower was likely to fare better than most from the reclassification of Australian life assets for tax purposes, even though the change would knock about 3 per cent off the embedded value of Tower Life Australia, or between 1.5 per cent and 2 per cent off the entire group.

Operations such as Tower's Australian trust business would actually benefit from the change.

Mr Boonzaier said Tower's Fijian operation faced riot damage claims of $4 million.

But an "inspired" decision four years ago to reinsure its exposure above $1.5 million would soften the blow.

No decision had been made on whether claims would be rejected.

Tower's challenge, he said, was to create shareholder value in a converging market, particularly as banks were getting significantly higher returns on equity than the 10 per cent typical of businesses like Tower.

Alliances were vitally important and the development of an e-commerce strategy in conjunction with the Indian industrial conglomerate TATA would lead to a deeper alliance "beyond doubt," he said.

A dividend of 14c a share (7c on the partly paids) will be paid, representing 55 per cent of net profit.