Good times back as Tower beats forecasts

Jim Minto

Transtasman financial service company Tower has topped market expectations with its first-half net profit and is signalling a resumption of payouts to shareholders at the full year.

At $32.5 million, Tower's net profit for the six months to March 31 was 55 per cent up on the same period last year, excluding one-offs and discontinued businesses, and higher than the most optimistic market forecasts.

Tower continued to enjoy rising sales and managing director Jim Minto said it was "clearly into a growth phase with all operating businesses showing stronger performances and improving their competitive positions".

Despite the company saying it had sufficient cash reserves and ongoing cashflows to consider resumption of dividends - something Tower investors have not enjoyed since 2003 - it did not announce one.

The company said the transtasman regime around the taxation of dividends made that form of return to shareholders inefficient and Tower was looking for alternatives.

"At this point, it's better for our shareholders to have their dividend in the share price so they receive the value in that form rather than having us lose value paying money to them that's not going to be tax effective for the business," said Minto.

The company was examining alternative methods such as on or off-market share buybacks.

"We're hopeful we can make a positive distribution announcement by the end of this year."

Asked if the company was signalling some kind of return to shareholders at the full year, Minto said: "Yes, we're saying that."

The group's improved performance, the first it has reported under new international accounting standards, was driven by another successful period in Australia.

Thanks to the acquisition of rival PrefSure, completed on March 31, Tower was now the third largest player in the Australian life insurance market with a 17.4 per cent share of in-force premiums.

Australian operating earnings excluding PrefSure were up 38 per cent on the first half last year after adjusting for one of items.

Separate numbers for PrefSure showing its new business had almost doubled and in-force premiums were up by a third on the previous corresponding period demonstrated it was "an extremely good buy", said Minto.

Meanwhile, Tower's New Zealand insurance business, a "dire" performer last year, had shown "major improvements". Operating earnings were up 22 per cent to $12.1 million driven by a reduction in management expenses and premium rate increases.

Lapses in group and individual health insurance and group life insurance had been reduced but individual life insurance lapses and relatively poor sales remained a concern.

The operating earnings of Tower's New Zealand investment business were up 47 per cent to $2.8 million helped out by the depreciation of the dollar which saw Tower's Global Fund yield a 44 per cent return over the 12 months to March.

The investment business saw good growth opportunities around the Kiwisaver scheme and changes to the tax treatment of overseas investments which Minto believed would boost the funds management industry.

He cautioned that Tower's first half performance was unlikely to be bettered in the second half.

Compulsory super 'inevitable'

Compulsory superannuation is inevitable and the Kiwisaver scheme is a move towards that, says Tower managing director Jim Minto.

He said yesterday Tower supported Kiwisaver which is "not ideal but it's a step in the right direction".

Its further evolution into a compulsory scheme was "necessary and inevitable".

"I think we're going to see it. We see the trend towards compulsory savings as being highly logical.

"New Zealand needs it. Its people need it, the country needs that capital base as well."

Minto said New Zealand's need for compulsory superannuation had been "put into sharp relief" during the years he had spent working in Australia, where retirement savings were made mandatory in the early 90s.

As an employer, he saw the benefit to people of having their own retirement savings and some control over how it was invested.

"There probably won't be any political will to do something in the next couple of years but it's inevitable that, in time, this has to become a significant policy issue for New Zealand."

He also saw employer contributions as a necessary part of compulsory super.

"It's inevitable that in time part of every employee's remuneration will be superannuation that's partly contributed to by the employer."