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Tower profit plunges after asset sales

Profits at Tower were$34.4 million in the year ended September 30, from $55.8 million a year earlier.
Profits at Tower were$34.4 million in the year ended September 30, from $55.8 million a year earlier.

Tower, which sold its health, life, and investment units to become a pure general insurer, posted a 38 per cent drop in full-year profit even as it booked a gain from the sales, as expenses growth ran ahead of revenue.

Profit was $34.4 million in the year ended September 30, from $55.8 million a year earlier, the Auckland-based company said in a statement. Sales rose 8.4 per cent to $283 million after year-earlier revenue was restated lower to reflect discontinued operations.

Profit from continuing operations was squeezed to just $419,000 from $19.4 million a year earlier as a $14.4 million increase in net operating revenue to $234 million lagged behind a $34 million gain in expenses to $226.5 million.

Tower said restated revenue grew from the previous year "primarily as a result of increased general insurance premium revenue." Net profit from ordinary activities was less than the prior year "as a result of divestment activity."

The company will pay a final dividend of 6 cents a share on February 3, bringing annual payments to 11 cents, unchanged from a year earlier. Its dividend reinvestment plan won't operate for the final dividend because of its plan to return $70 million of capital following the sale of its life business to Fidelity Life Assurance.

Tower first flagged the capital return in September and today said it would be by way of an off-market, pro rata voluntary buyback.

Shareholders will be offered $1.81 apiece for their shares in a buyback that is conditional on garnering enough acceptances to equal at least 10 per cent of the company's market value. That amounts to a minimum of about $35 million. No brokerage will be charged.

That's a higher price than the $1.70 that Guinness Peat Group accepted to exit its 34 per cent stake in the insurer in September. Shares of Tower last traded at $1.70 and have declined about 12 per cent this year.

The shares are rated a 'hold' based on the consensus of four analysts surveyed by Reuters, with a median price target of $1.89.

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