Writeoffs, Australia trouble get blame for Tower loss

By PAULA OLIVER

A series of big writeoffs and trouble in Australia were the main factors behind Tower's half-year loss of $154 million.

The insurer, releasing its result and details of a significant capital-raising yesterday, said that the half year had been challenging.

Markets had been very difficult, investment returns were poor and the company had to deal with more lapses and surrenders from customers than it anticipated.

But huge strides had been taken to restructure and reorganise the company, chairman Olaf O'Duill said from Sydney.

Tower's loss was foreshadowed in a profit warning last week.

It includes writedowns of $135 million relating to the amortisation of goodwill in its accounts.

As revealed last week, new auditors recommended that Tower change its practice of not amortising all of its goodwill each year.

Yesterday O'Duill said that the new auditors had "presented us with some interesting challenges".

He said that Tower's board had decided to take a prudent and conservative approach to its balance sheet, and the one-off $135 million charge recognised that.

Tower's Australian operations have dragged on its profits for more than a year, and yesterday's result emphasised the situation.

Tower's New Zealand operations made an after-tax profit of $10.8 million. Group managing director Keith Taylor said the company's retail funds business should deliver bigger returns for its size.

Tower managed funds had a net outflow of $159 million in the half year.

On the good side, locally there was accelerating growth in the life and health insurance business.

In Australia, where Tower is criticised for not having a strong brand or scale in the market, the insurer again struggled.

But both O'Duill and Taylor said that vastly reduced expenses and other structural changes across the Tasman meant things were looking up.

Wealth management business Bridges again took a writedown in its carrying value, this time of just over $20 million. Last year Tower trimmed more than $30 million off its value.

Taylor said the latest change was not because Bridges was not performing.

"It is performing. This is because we're being prudent."

Tower suffered a significant number of lapses and surrenders in the half year, although Taylor said that was showing signs of turning around.

O'Duill said customers could have confidence in Tower's efforts to recapitalise and restructure. It will not pay a dividend.