Australia helps Tower surge

Tower's profits have surged thanks to Australia's booming financial services sector but a lacklustre showing in New Zealand means its September-year result was below expectations.

The dual-listed insurer and fund manager said its net profit was $97.8 million, 79 per cent ahead of last year.

Its operating profit, which excluded a $23 million gain on the sale of its Australian Wealth Management business this year and about $30 million in revaluations, was $42.7 million, up 67 per cent.

The results were in line with guidance issued at the start of the month intended to take the steam out of analysts' lofty forecasts but were not sufficient to persuade the company to pay a dividend.

"The operating performance has been good but it didn't meet our expectations," said chief executive Jim Minto.

"We set ourselves higher goals than we delivered and we want to do better."

For the past three years, Tower has been struggling to recover from a string of disastrous results that stemmed from its poorly performing Australian businesses and weak investment returns.

But recent times have seen a reversal of misfortunes, with the Australian operations making good ground while the New Zealand risk business has been the laggard.

"In New Zealand, we stumbled this year," said Minto. Although Tower's New Zealand insurance operation produced a 59 per cent increase in net profit to $12.6 million, it was below management expectations.

It was affected by issues of poor service, restructuring charges, costly weather events and a more competitive insurance market.

Meanwhile in Australia, where Tower remains a tiddler, net profit rose by 51 per cent to $35.1 million with strong growth in life insurance sales. Tower was capturing the second largest share of new business, in a sector which grew by 11 per cent last year.

Minto believed the market was set to grow even faster "simply because there's a huge level of underinsurance in Australia".

Melbourne-based ABN Amro analyst Nick Caley said yesterday's result "wasn't as bad as we'd feared" after Tower's revised guidance.

"Australia looks to be going fine on the boom in financial protection here, but New Zealand right across the board just looks to be an ongoing struggle. You've got high lapse rates, poor new business levels and high expenses and they're all combining to give you a pretty modest outlook."

With a rejigged management structure and several new distribution initiatives, Tower was bullish about its New Zealand prospects but Caley was sceptical as the entire industry was much softer than in Australia.

"It hasn't been a growth story for AXA and AMP in the life and wealth management space so we'd question why Tower was any different."

Meanwhile, despite a strong capital position, Tower said it would not pay a dividend. It has not paid dividends since 2003, and said it wanted to be sure it could achieve "sustainable recurring profits".

"We'll look at a dividend next year on the back of what we hope will be a strong first half," said Minto.

Chairman Olaf O'Duill said the company would like to double its operating profit before resuming dividend payouts.

"It would be foolish of us to promise a doubling of operating profit in six months but we can aspire to it."