Tower posts small half year profit

12.15pm - UPDATE

Closely watched insurer and financial services company Tower Group today reported it was trading back in the black with a $5.5 million net profit for the second half of the year to September 30.

Today's result translates into a full year net loss of $148.9 million, a figure affected by substantial write-downs earlier in the year.

The result was influenced by significant changes in accounting policy.

Chairman Olaf O'Duill said the turnaround in the second half reflected more favourable investment conditions and the reduced effect of one-off items including write-downs in carrying values.

Operating revenue improved 69 per cent to $838 million from $581 million in 2002, reflecting a marked improvement in investment income in the second half of the year.

"While premium income was down slightly, assets under management as at September 30 were a solid $20.8 billion, a net increase of 6 per cent on the previous year," he said.

The result showed Tower was making progress with initiatives to strengthen the profitability of its insurance and wealth management businesses in Australia and New Zealand, he said.

"Twelve months ago, Tower's position was a difficult one. Today, it has been significantly improved through decisive remedial action.

He said the company was nine months into "what we anticipate will be a two-year rebuilding process and to a large extent the net loss for the year reflects tough decisions we've taken to put the group on a better footing for the future".

Improvements included a stronger balance sheet, a focused board and management, and effective strategies for building on in both Australia and New Zealand.

Troubles in Australia, the source of most of the group's problems, which seemed to be on the mend in the first half, were far from over.

"Tower Australia is making steady progress in refocusing its product offering, raising customer service and reducing expenses," managing director Keith Taylor said.

"However there continues to be significant cost in repositioning Tower Australia and in carrying out remedial actions in respect of compliance issues."

Mr Taylor said the improvement in retention levels evident in the first half result had not been maintained in the second half and was "the subject of considerable management activity". The company had again reviewed the carrying value of subsidiaries in the second half and only written them down by $700,000.

The balance sheet was bolstered earlier in the year by a $210 million rights issue, the proceeds of which were used to repay debt and reduce the group's gearing from 45 per cent to 22 per cent.

Mr O'Duill confirmed that a dividend would not be paid and reiterated that the board intended "to recommence payment of dividends when appropriate levels of profitability are met".

Mr Taylor said there had been substantial profit increases in the New Zealand businesses of Tower Insurance and Tower Health & Life.

Tower Asset Management had increased its profit contribution.

"This has been a turbulent period but we are confident that the steps that have been taken over the past year will provide a sound base for the company's future growth," Mr Taylor said.

The group's pre-tax operating loss in the September year increased to $132.6 million from $100.5 million.

The loss per share amounted to 74.48 cents against 41.97 a year earlier.

Tower shares tumbled 6 cents, or 4.5 per cent, to $1.28 shortly after the result was announced. The stock, 17.7 per cent owned by Guinness Peat Group and 9.7 per cent by Hanover Group, has slumped from around $4 at the beginning of last year.

- NZPA