TWR
21/03/2013 10:00
ADDRESS
REL: 1000 HRS Tower Limited
ADDRESS: TWR: Annual Meeting Address
21 March 2013
Market Information
NZX Limited
Level 2, NZX Centre
11 Cable Street
Wellington
NEW ZEALAND
Company Announcements Office
Australian Stock Exchange Limited
Exchange Centre
Level 6, 20 Bridge Street
Sydney NSW 2000
AUSTRALIA
TOWER Limited: Annual Meeting Address
Attached is a copy of the address to the annual meeting of shareholders.
Bronwyn Walsh
Company Secretary & Compliance Manager
TOWER Limited
ARBN 088 481 234 Incorporated in New Zealand
ADDRESSES TO THE TOWER ANNUAL MEETING
21 MARCH 2013
Ladies and Gentlemen
Strategic review process
The words "strategic review process" have been in regular use by TOWER over
the last 12 months. During the period, the company sold both TOWER Health and
TOWER Investments, following a comprehensive strategic review conducted by
the senior executive team following an unsuccessful bid to purchase AMI which
would have seen TOWER significantly grow its general insurance business.
The review was with the support of the TOWER Board which was of the view that
the full value of TOWER's operations across four business lines was not
reflected in the share price. In other words, TOWER and market commentators
saw the sum of the parts value of TOWER's business units as greater than the
market price of TOWER's shares.
During the course of the review, a thorough investigation into the courses of
action available to TOWER was undertaken. In considering the various options,
including operational alliances and the divestment of businesses, the
underlying objective was to identify opportunities that would create value
for shareholders. The strategic review process has been a catalyst for our
Board and executives to focus on long term success for our business.
Central to this thinking is the need:
o to be relevant in the markets that we operate in,
o to be excellent at what we do,
o to utilise our capital as efficiently as possible and achieve appropriate
returns on this capital,
o to simplify the way we do business wherever possible, and
o to grow in a profitable and sustainable manner.
The insurance sector operating environment now has an increasing level of
regulatory requirements, which raise business administration costs and
complexity.
On 30 November 2012, we completed the sale of our Health business to nib
holdings limited for approximately $103 million. We will have an ongoing
relationship with nib as a distributor of health products for TOWER's
customers.
The decision to sell TOWER Medical Insurance was made because we did not
consider that TOWER would be able to achieve the necessary scale or return in
this business in the immediate future. Although the Health business was
profitable and cash flows were positive, scale is an important factor in
determining long-term viability.
After completing the strategic review, it was the Board's opinion that the
value of the business to shareholders was as high as it was going to get
without significant investment in change projects. One of the main reasons
for this conclusion was that the health insurance market is shrinking,
largely due to the fact that an increasing number of New Zealanders simply
cannot afford the premiums for health insurance products.
Another factor contributing to the decision to sell the company was that more
than 75 percent of the businesses in the health insurance market are not-
for-profit organisations and therefore not driven by a need to provide value
for shareholders. Given the strong financial and operating performance but
lack of growth potential, the time was therefore right to sell the business.
On 26 February 2013, we announced the sale of our Investments business to
Fisher Funds for $79 million. This transaction is due to settle on 2 April
2013. TOWER Investments is also a business that is well managed and
profitable.
However, the business does not have large scale distribution arrangements in
place which are increasingly necessary to ensure success in a competitive
market at a time when margins are being eroded by KiwiSaver. Again, it was
concluded that the value of the business would not increase without
significant investment in change projects and the decision was therefore
taken to sell the business in a competitive process.
Shareholder returns
The Board is focused on maximising returns to shareholders. The strategic
review process has been central to this. Total shareholder returns are
measured by the improvement in our share price plus the cash payments back to
our shareholders.
A final dividend of 6 cents per share was paid on 1 February 2013, bringing
the total dividends for the 2012 year to 11 cents per share. We are proposing
making a capital return to shareholders of $120 million, subject to court and
shareholder approval - we will cover this later in the meeting. We are
pleased to see the improvement in our share price over the past 12 months,
from around the $1.40 level, to $1.87 yesterday.
TOWER's people
Through the past year, TOWER has employed nearly 1,000 people in the
business. In a business and economic environment which has been challenging,
our people have worked hard to meet our customers' expectations, and to
improve our overall business performance.
Group Managing Director Rob Flannagan leads our team and has done so again
this past year with strength and determination of purpose. Through his
leadership, the TOWER team has been fully engaged in both the strategic
review processes and "business as usual" activities. We acknowledge that this
is a demanding process and we wish to pay tribute to the skill and continued
dedication of our staff. Rob has this morning given his notice of
resignation to the Board and we wish to thank him for his immense
contribution to TOWER. We will be working closely with him to enable a smooth
transition to a new leader for TOWER.
In addition to our staff, TOWER has important support from intermediaries and
advisers, many of whom have long standing business relationships with us.
On behalf of the Board, I would like to thank all of TOWER's people for their
efforts over the last year, and acknowledge their contribution to our
improved profit result.
Earthquake recovery
Our business is insurance. Our purpose is to provide insurance protection to
our customers. When an event occurs, we must respond to their needs in a
timely and caring manner. The impact of the Canterbury earthquakes is ongoing
for a great many people, including a number of customers and our employees.
The Board and executives are closely monitoring our progress with customer
claims in Canterbury. We are conscious of the need to be fair and timely with
claims' settlement, and allowing customers to get on with their lives. The
situation is large and complex, with many different organisations and
authorities involved in making the rebuild and recovery happen.
TOWER continues to monitor claims provisions. We appreciate the on-going
support of our reinsurers. You will be aware from media reports that we have
recently had a claim considered by the courts. The case is in fact an
industry issue and, as it is before the court, it is not appropriate for us
to make comments at this time.
We acknowledge the efforts of our people in managing this difficult
situation, as well as the uncertainty and needs of our customers.
Directors
Over the last year, the Board has been refreshed as signalled at last year's
annual meeting, with four new directors being appointed - Graham Stuart,
Michael Stiassny, David Hancock and myself. Combined with our longer
standing Board members, we have a good mix of skills, knowledge and
experience to take the company forward.
As you know, after nearly nine years on the Board, previous TOWER Chairman
Bill Falconer decided to stand down in September 2012, to enable a new
Chairman to implement the initiatives arising from the strategic review
process. We would like to thank Bill for his contribution to the company.
The Board appointed me as Interim Chairman, to lead the Board through a
transition phase to this meeting when you would have the opportunity to
confirm the election of directors appointed during the year, including
myself. Subject to election by you today, I am pleased to advise that the
Board has appointed Michael Stiassny as its new Chairman with effect from the
conclusion of today's meeting.
As I noted earlier, Susie Staley is retiring from the board after 12 years
excellent service to TOWER. Susie has played a key role in the significant
corporate changes TOWER has undertaken, including most recently chairing the
Due Diligence Committee overseeing the sale of our health and investments
businesses, and we farewell her today with much appreciation for her
contribution.
With Bill's and Susie's retirements, John Spencer is standing for re-election
today. The Board recommends his reappointment for another term as the Company
completes the transition into the full prudential supervision and licensing
requirements of the Reserve Bank. This transition will include the
appointment of independent directors to the boards of the licensed insurance
companies in the group.
We are conscious as a Board of the need to continue to consider succession,
and the appropriate composition of the Board and senior management, including
diversity considerations.
Conclusion
In conclusion, the Board is comfortable that we have made good progress in
the last 12 months, including:
o business operating performance in 2012 was positive,
o the strategic review provided focus for the Board and senior team,
o the execution of the sale of the health business and the conditional sale
of the investments business delivered value for shareholders,
o the board has been refreshed
TOWER will continue to assess opportunities to generate additional value for
shareholders. TOWER intends to implement corporate, operational and capital
structures to focus on optimisation of value. It is anticipated that
implementation will be completed within the next few months. We will also
focus on planned operational improvements and strategic imperatives to
develop an excellent, customer focused business, which can achieve profitable
growth.
Whilst there is still much to be achieved, TOWER's financial strength and
brand reputation provide us with a sound platform to grow the value of the
business.
May I now hand over to Rob Flannagan and Michael Boggs to brief you in detail
on the 2012 performance.
_________________________________________________________
Group Managing Director's Address
Thank you Mr Chairman. Good morning Ladies and Gentlemen
TOWER continues to operate within a difficult economic environment, but
remains profitable, maintains a strong balance sheet and is well positioned
for organic growth. Pleasingly, each of the business units - General, Life,
Investments and Health - improved performance in 2012 over the previous year.
We have been very focused on improving our engagement with staff, customers
and the adviser community, and are seeing this approach translate into solid
returns for our shareholders.
The 2012 year was a period of recovery from the Christchurch earthquakes. To
date we have closed over 60% of claims and have made payments exceeding $255
million, with over $3 million being paid out every week.
Individual claims require careful and detailed management. While we not wish
to be in litigation with our customers, there are issues for the whole
industry arising from the interpretation of policies that are important for
the courts to consider. The involvement of third parties who will receive a
percentage of any payment is also a factor. You will have seen this in the
media reports from the recent case involving TOWER, where a pre trial claim
for a rebuild cost of $1.3 million was made, in comparison to a 2007 pre
earthquake CV of the land and buildings of $420,000.
The year has been a very busy period for TOWER given the comprehensive
strategic review to identify opportunities to deliver long-term benefits to
shareholders.
As a direct outcome of the review we have announced the sale of both our
Health and Investment businesses.
We have also refreshed the TOWER Board during the year, with four new
Directors appointed.
TOWER's net profit after tax for the year ended 30 September 2012 was $55.8
million, compared to $33.4 million for the previous year. This is a
substantial increase in our financial performance and a result that the Board
and executive team was very pleased to deliver to the market.
On the strength of the result the Board announced a final dividend of 6 cents
per share, bringing the total dividends for the 2012 year to 11 cents per
share.
I will now ask Michael Boggs, TOWER's Chief Operating Officer, to provide
further detail.
_________________________________________________________
Chief Operating Officer's Address
Thank you Rob and good morning.
I'd like to take you through the results in more detail, beginning with the
General Insurance business. The General Insurance business made a profit of
$13.2 million and our underlying business continues to grow. This result
includes additional provisions of $9.4m after tax related to the February
2011 event. This business has recovered well from the Christchurch earthquake
events.
Profit from the Life Insurance business excluding the discount rate movement
is $23.7 million - a significant increase of $4.9 million compared to the
same period last year. Premiums have continued to grow and claims experience
is favourable during the year. The core insurance business is growing,
reflecting insurance profits improving over both 2010 and 2011.
The Investments business profit of $7.0m is higher than the prior year. This
has been achieved by growing external Funds Under Management and controlling
management expenses.
The Health Insurance business, which we sold to Australian insurer nib in
November, recorded a profit of $13.3 million - an improvement of $3.6m on
FY11.
Finance and corporate expenses have increased by $3.6 million compared to the
same period last year. This increase predominantly relates to fees incurred
in relation to acquisition activity and the strategic review.
So after the impact of the discount rate, our Net Profit after Tax was $55.8
million.
We continue to wish to pay a dividend each year out of Net Profits earned.
This year we have paid a final dividend of 6 cents per share which takes the
annual dividend to 11 cents per share. This year's dividends are unimputed.
With a return of capital planned, the company's dividend reinvestment plan
did not operate for this dividend payment and all shareholders received a
cash dividend payment.
Management of solvency in line with the new Insurance Prudential Supervision
Regulations is now embedded within the business, as is monitoring by the
Reserve Bank. We continue to operate to targets above the minimum to ensure
that TOWER's balance sheet remains strong.
Last year we noted that we would make payments of over $450million relating
to Christchurch. To date, $255 million in payments have been made, fully
matched by reinsurance recoveries. We continue to need to focus on the
matching of these payments to their recovery from reinsurers, managing the
impact on working capital.
Today we are proposing the return of $120m in capital from the proceeds of
the Health sale.
External debt is $82 million and consists of unsecured bonds which mature in
April 2014.
With the sale of the Health and Investments business, which are low capital,
cash generating businesses, there is a need to update our Capital Management
Plan. This is in progress and is taking into account our current operating
environment, the levels of risk relating to catastrophe events, debt
structures, and ensuring we deliver the required return on capital for
shareholders.
With the challenging economic environment we are focusing on maintaining
growth both through new business and customer retention. Success is reflected
in the income statement, with premium growth across the business.
Claims are proving a challenge this year. We continue to manage the impact of
Christchurch earthquakes, with a small value of new claims flowing through
from the December 2011 earthquake. Cyclone Evan, which struck the Pacific
islands in December 2012, has impacted our Fiji and Samoa operations by
approximately $4 million. In addition, a high number of small claims in the
Life business has meant less claims have been recoverable from reinsurers.
Rising interest rates are impacting on investment returns negatively, given
our substantial fixed interest investments.
The strategic review means more costs have been incurred at a corporate
level, although these will be offset by the gains on sale.
In summary, positive growth is being offset by claims experience and
volatility in investment returns. One-off catastrophe events and costs are
also impacting performance.
With the significant change in business operations during the first half of
this financial year, it will be important for us to provide a clear
explanation of the impact of the changes when we announce our half year
results in May. We will also provide further clarity on our planned
operational improvements and the future prospects of the business.
Ends
End CA:00234390 For:TWR Type:ADDRESS Time:2013-03-21 10:00:11
