Tower Lurches To $160m Loss

Sydney Morning Herald

Thursday May 22, 2003

Anthony Hughes

Australia's life insurance sector lurched further into the red after trans-Tasman insurer Tower revealed another earnings shock, leading investors to strip more than a third, or about $124 million, from the company's sharemarket value.

Echoing the woes of AMP, Tower yesterday revealed it would report a first half loss of about $NZ180 million ($160 million) next week thanks to a $NZ190 million write-down.

It would also seek to raise $NZ200 million in fresh funds to slash debt.

The reduction in the carrying value of the subsidiaries was in part made at the insistence of Tower's auditors of barely one month, PricewaterhouseCoopers.

The damage to the share price, which fell 36 per cent or 71c to $1.25, was worsened by the company's failure to detail aspects of the fund raising.

This suggests that, unlike AMP earlier this month, Tower is still to finalise an underwriting agreement to guarantee the funds. Chief executive Keith Taylor declined to provide further details until next week's first half results briefing.

He at least appears to have the support of the major shareholder, Sir Ron Brierley's Guinness Peat Group.

GPG and Tower director Tony Gibbs said last night: ``Our position at the moment is the write-down of the assets and the capital raising was a collective decision of the Tower board and we were involved in it and supportive of it."

GPG could well be called upon to make a big contribution in any capital raising. But it already holds just under 10 per cent of Tower's capital, giving it little room to move as Tower has a 10 per cent cap on individual shareholdings. The cap expires in September.

Asked if the company would remove the cap, Tower chief executive Keith Taylor said: ``That's another thing I can't comment on."

He said the write-down reduced Tower's net tangible assets to about $3 a share, still well above the market price.

About $NZ135 million of the $NZ190 million write-down relates to a change to the application of accounting principle that Tower has applied since it demutualised in the late 1990s. Tower's accounts at September 30 show $634.3 million attributed to the ``excess of directors' valuation over net tangible assets of subsidiaries". Tower's new auditors are understood to have taken the position that this treatment was not correct and the amounts should have been amortised in previous periods and the board had no choice but to also take this view.

Mr Taylor said the company had to disclose the write-down now to conform to continuous disclosure rules but did not want to surprise the market next week with a separate capital raising announcement.

Tower said the operating profit before the write-downs for the entire first half would be only $NZ3 million to $NZ6 million, implying a second quarter operating loss.

The weaker performance is in part due to poor investment returns and there are believed to be some restructuring charges as well.

As a mid-sized player in the Australian market, Tower has long been speculated on as a potential takeover target but it also made an aborted bid last year to buy Tyndall, the financial services arm of Promina, which listed on the Australian Stock Exchange last week.

Standard & Poor's credit analyst Michael Vine said Tower's problems were similar to AMP's in the sense that it had expanded outside its successful home market base.

``Tower had a strong market position in New Zealand. In Australia, it's like a small fish in a big pond and having operational difficulties a bit like AMP branching out to the UK."

Life at the top?

* Jul 24, 02 - Managing director James Boonzaier "retires"

* Dec 5 - Full-year loss of $NZ74.9m; chairman Colin Beyer lays blame squarely on Boonzaier

* Jan 3, 03 - GPG confiermed as holding nearly 10pc stake

* Feb 19 - Beyer quits as chairman

* Mar 5 - First-quarter net profit of $NZ5.4m

* Mar 31 - Tower Australia's capital position "fully restored" with capital injection

* Apr 4 - Keith Taylor confirmed as chief executive

* May 21 - Profit downgrade, $NZ190m writedown and $NZ200m raising

© 2003 Sydney Morning Herald

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