Tower - Down but not out
Tower’s acting chief executive Keith Taylor thinks last year was probably the company's worst on record, but he says it is now getting its house in order. He talks to Sue Allen about what happened and where Tower goes now.
Monday, February 3rd 2003, 10:05PM
by Sue Allen
For many financial services companies last year was a tough one. After years of good investment returns, the worm turned and things started to get nasty and so did shareholders.
For Tower, the year was particularly brutal. After a good first half-year, where investment income stood around $200 million, the second half year saw a drop to minus $250 million – and the cracks soon started to show.
In November, Tower issued a profit warning anticipating a year end loss of up to $40 million.
By December the confirmed loss figure for the year had risen to $74.9 million.
Between February and December Tower saw its share price fall from a year high of $5.34 to a low of $1.56. Tower’s shareholders had certainly decided to vote with their feet. As shareholders revolted, the inevitable head rolling started.
Long-term chief executive James Boonzaier left last July after 12 years with the company, to be replaced first by Jim Minto – who is now heading up Tower Australia - and then by Keith Taylor in an acting capacity since November.
A permanent appointment is still awaited.
Taylor says one of the first things that had to go was the company’s top-heavy structure.
At one stage, he says, there were around 10 operating companies in the Tower group, each with their own managing director and board.
"For a company with staff numbers of around 2000, I think it was too complicated. It was too top heavy and it was too expensive in terms of the number of senior people we had and we had too many semi-autonomous boards."
Of the 12 senior managers, he says there are about six left and the board structure of the company has been slimmed down from 10 or 12 to five.
"We have a group head office structure and we ended up having five very senior people at chief executive or managing director level in the head office, but they were not actually running operations and in my view that was far too many. We are now down to three here, and that’s the right number."
The company also shed around 5% of its staff.
Taylor thinks this number will reduce further as staff complete contracts and projects, but he does not envisage any more large-scale redundancy rounds.
The losses, he says, must be seen in the context of two very poor investment years, which he says hit many financial services companies.
The one he can most easily live with is the $36 million write down on the value of its Australian master trust business, Bridges.
"That was really just a reflection of the market – with the poor investment market people were taking a more conservative view in their valuation of that business – it was not a reflection of it being a bad decision to buy it two years ago."
The company’s bigger problems were with Tower Australia
Just over 70% of the Tower group’s income now comes from its three Australian companies; around 45% from Tower Australia – its retail investment, life insurance and superannuation operation.
He says "90%" of the company’s problems were in Tower Australia and they were primarily operational issues.
"For various reasons the structure was inappropriate, we didn’t have the right people running the business, so things like the control of expenses was not as it should have been. Some of our IT projects were not as they should have been, so we took some pretty big writeoffs."
Tower Australia accounted for $44 million in operational and expense write downs; IT cost a further $33 million.
The obvious question it seems is – couldn’t something have been done earlier if all these things were so obviously in need of attention? After all, investment markets had been faltering for two years.
The "who is to blame" debate has been held rather publicly over the last two months between Boonzaier and Tower’s chairman, Colin Beyer.
In a recent open letter to the National Business Review, Boonzaier defended his own performance and suggested Tower’s board should front up and take more responsibility for the company’s poor performance.
He also suggested that "an infusion of new blood", was needed at board level.
For obvious reasons, Taylor says he does not wish to be drawn into that debate.
"If you look at the issues that come out of Tower, you obviously can’t put the blame, to the extent that blame is the appropriate word, on any one person. I think that the board and the senior management team also have a responsibility for the things that happened to varying degrees.."
What he is happier to discuss is Tower’s future.
He says aside from the write-downs, the fabric of the company "isn’t too bad at all".
"Our New Zealand businesses are all performing well, and I think they will continue to do so and we are gearing them up to even higher levels of performance."
As far as Tower Australia goes, Taylor says it's about how quickly they can turn it round, although he admits that it may not trade profitably in the near future.
Tower has just announced it is to pump a further $30 million into Australia by March to prop up the company’s surplus asset level.
He says they are now making good progress on Australia’s "operational issues" and are working on boosting sales.
Other than that, he says there are no current plans to dramatically change product lines and the company will remain focused on the retail, rather than large corporates.
But he does not dismiss the idea of further acquisitions in Australia to grow the business.
"We do want to grow our business in Australia and acquisitions may be part of that, but at the moment we are focused on organic growth, because we feel we have good prospects of that."
On a personal note he, like everyone else, is keen to find out who will be appointed to lead the company.
"I’ve been in Tower for 20 years and I’m certainly keen to see it through for a time yet, but it all depends on when [the board] get round to employing a new chief executive and what he wants to do going forward."
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