Tower says it still has a future in Aust

Tower remains convinced it has a future in Australia despite its operations there being the main cause behind its expectation of reporting a $40 million plus loss in the year to September.

The mainly Australia-based analysts who cover Tower had been forecasting a net profit of more than $60 million for the year.

The bottom line loss is likely to balloon even further when an independent valuation of the Australian advisory business Bridges is finalised in about two weeks. Bridges is currently valued in Tower’s books at A$180 million.

"We’ve been in Australia for 11 years and made a number of acquisitions in that market. We don’t regret one of those acquisitions," says acting chief executive Keith Taylor.

He does concede "there have been operational issues in Australia" which accounted for about 65% of the company’s earnings last year.

The major problem areas behind the expected loss are the continued decline of investment markets, the bringing forward of writeoffs of capital spending on information technology and higher than expected disability policy lapses and costs in its Australian life insurance business.

About $9 million of the one-off costs also relate to restructuring – the company has sacked about 80 staff. Of those costs, $2 million was paid to former chief executive James Boonzaier.

While some of the losses relate to the former FAI Life business Tower was busy integrating at the time of its float three years ago, "I don’t think we would put any blame for current results on the acquisition of FAI," Taylor says.

The Bridges revaluation is required because life insurance companies have to mark their assets to market value every year. Last year, Tower wrote up Bridges’ value by $17 million and it is currently carried in its books at just over A$180 million ($204.5 million).

"Bridges has operated very well for us in the last 12 months. There are no questions about its profitability," Taylor says.

But market valuations of those sorts of businesses have come down, partly because of concerns margins are being squeezed, he says.

By contrast with, the New Zealand operations’ results are likely to be in line with expectations.

The company is seeing good growth in its New Zealand risk portfolios and sales are at record levels.

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