Tower announces profit downgrade

Poor performance from its New Zealand risk business has failed to knock trans-Tasman insurer Tower off a two-year course of profitability.

The group last week posted an announcement on the Australian Stock Exchange that said it expected to post a profit after tax of NZ$40-43 million for the year ending September 30, 2005, an increase of 63-75 per cent on last year.

The anticipated profit, however, was significantly below analysts’ expectations and prompted the company’s share price to fall 15 per cent last Tuesday to A$1.73.

In light of a predicted NZ$8 million decrease in profit from its New Zealand insurance operations, Tower chief executive Jim Minto was lukewarm about the group’s current state of health.

“Even though we’re up, we could be doing better,” he said.

“We feel our New Zealand result is pretty ordinary. Our service level fell and we haven’t been managing our claims or our margins as well as we should,” he said.

Minto said since Tower was first alerted to its problems in New Zealand, the group has replaced two of its three New Zealand-based chief executives and “replaced nearly all of the next level of management” in the last six months.

The annual profit will be the second in a row for Tower, after it instituted a two year recovery strategy after experiencing a$148.9 million loss in 2003.

As well as being boosted by cost cutting triggered by the restructure, Minto said most of this year’s profit was the result of increased operating income generated by good growth in insurance revenues, a good business model in its Australian risk business and, to a lesser extent, from strong equities markets.