Profit warning hits Tower

By PAULA OLIVER AND NZPA

Shares in insurer Tower hit record lows yesterday after the company was forced to again reveal that its profit was not going to live up to expectations.

In a warning that surprised many in the market, Tower's bosses said next week's half-year result announcement would show a loss of more than $180 million.

The company would have an operating profit for the period of between $3 million and $6 million.

With the profit warning came news of a plan to raise $200 million in capital.

Tower Group managing director Keith Taylor said the new capital would be used to reduce debt, but refused to say how the money would be raised.

That information won't be available until next week, but some analysts are predicting a discounted rights issue.

The market reacted swiftly to Tower's news, sending the share price sharply down.

Shares ended the day down 83c or 37 per cent at $1.38, a far cry from the heady days of 2001 when they were valued at more than $5.

It is not the first time Tower has had to issue a profit warning.

Last November, its share price plummeted after a similar warning preceded an annual loss of $74.9 million.

Loss-making Australian operations were held responsible for that result.

But since then, significant changes have been made to the company's board and management and it seemed things were looking up.

Tower's latest warning came after an external review, and was forced on the company by new continuous disclosure rules.

The company intends to cut the carrying value of certain assets by $190 million as a result of changes to accounting standards.

This will include amortising $135 million of goodwill.

Taylor said he hoped the restructuring would put an end to nasty surprises.

"It was our intention to get Tower's capital position in an unquestionable position of strength so we can get on with running the business and get greater profitability," he said.

"We thought it was a good time to do a thorough review and clear things out, and that's what we've done."

He hoped it was the last time shareholders would hear bad news.

"It's not a process we're that keen on going through again."

Market focus has now turned to what form the capital raising will take, and what Tower might do with its Australian businesses.

Macquarie New Zealand investment director Arthur Lim predicted a "deeply, heavily discounted" rights issue.

"It's going to be a long road for them," he said.

"It's a big capital raising to work through."

Tower's market capitalisation at the end of trading yesterday fell to $242 million, making its raising of $200 million a significant burden.

There was speculation in the market yesterday that Tower's 9.93 per cent shareholder Guinness Peat Group could ultimately benefit from the situation.

A rights issue could allow GPG to pick up Tower shares relatively cheaply once a 10 per cent shareholding cap lapses on September 30.

GPG director Tony Gibbs, who is also on Tower's board, said GPG was "very supportive of the actions of the board and obviously we were part of the decision-making process".



Taylor responded to questions about the company's Australian assets by saying Tower was fully committed to the country.

"We are reviewing some aspects of our strategy over there, but we're fully committed," he said.

"We have got good businesses there that are going to be key parts of the group."

Tower will reveal details of its capital raising, including any shareholder and regulatory approvals required, with the half-year result next Wednesday.