Tower chairman Tony Gibbs was in great form at today’s annual meeting as he batted away a large number of questions on costs, staff levels, dividend policy, potential takeover offers, KiwiSaver and the group’s exposure to credit markets.

CFO Maree Webster told shareholders that the 12 per cent rise in employee expenses was partly due to the extra staff required to separate the New Zealand and Australian operations, while CEO Rob Flannagan said that staff turnover was high because Generation Y had little employment loyalty.

Gibbs was delighted with the 6 cent final dividend for the September 2007 - the first payout in more than five years - but he was unwilling to make any firm commitment regarding future payments. He said that the board had no dividend payout ratio policy and had not decided whether it would pay an interim dividend in future years but he hoped that the final dividend for the September 2008 year would be greater than 6 cents.

In reply to a question Gibbs said that a steady stream of individuals visited his office with proposals regarding Tower but there were no takeover offers for the company at present nor was he expecting one in the immediate future. But he went on to say, with a broad grin on his face, that he would welcome an attractive bid.

Tower has made a big investment in KiwiSaver but has attracted only 29,000, or 7.0%, of the 414,000 contributors. Flannagan admitted that this is a low market share, particularly as Tower is one of the six default providers, but the company was struggling because the trading banks had far greater distribution power.

After the meeting company representatives argued that the IRD’s 414,000 KiwiSaver figure seems to be too high and a large percentage was children, who will be more of a cost than a benefit to providers for a number of years. It will be three to five years before Tower’s KiwiSaver operations are profitable.

Tower’s exposure to the international sharemarkets and the credit crisis was also raised. In this regard the group has three main types of investments:
1) On balance sheet investments where the profits and losses accrue to Tower 
2) On balance sheet investments where the profits and losses mostly accrue to life policy holders and other outside parties
3) Off balance sheet investments, mainly funds managed by the investment division.

The first area has the biggest impact on earnings in the short term and in this regard Tower is well placed. All of its general insurance division’s investment funds are held in short term fixed interest securities offering high interest rates as Pimco, the offshore fixed interest portfolio manager, was one of the first managers to anticipate the credit crunch.

This was one of the reasons Gibbs was in such fine form as he told shareholders that results for the first four months of the year were tracking ahead of the same period in 2006/07.

Brian Gaynor - 12 February 2008