TOWER LIMITED — Annual Report 2008

Feb 16, 2009

CHAIRMAN’S ADDRESS TO THE TOWER ANNUAL MEETING 17 FEBRUARY 2009

Ladies and Gentlemen.

The 2008 financial year saw Tower produce another good result. The Group produced a net profit after tax of $40.5 million. This was a satisfactory performance showing a 17% improvement on the comparable result for the previous year. It is worth noting that in the two financial years completed since the separation of Tower Australia, we have now seen net profit after tax increase by 44%.

And I am very pleased to note that we have continued to pay a dividend to you our shareholders. We have in fact increased it to 8 cents per share up from the 6 cents that was paid last year. I can confirm that, provided our profit targets are met, it is the Board’s intention to continue paying an annual dividend after the end of each financial year.

What is also pleasing to report is the confidence and support shown by the many shareholders who have elected to reinvest their dividend back into the company by way of our Dividend Reinvestment Plan. More than 2 million shares have been allotted under that scheme representing a take up by the holders of more than 33% of the eligible shares.

Decisions to invest in shares are of course not easy in the present environment which has seen share markets plummet in New Zealand and around the world and confidence is not much in evidence anywhere. In the last 12 months, the whole New Zealand share market has dropped by almost 23% exactly matching Tower’s share price performance. The only slightly positive thing one can say about that is that Tower’s price has simply followed the market.

I am sure that the market will eventually recover. But at the moment it’s anybody’s guess when we are going to see this. In the meantime we will continue to develop Tower’s brand and product range, continue to look for growth in our market share and continue to enhance our systems and streamline our operations. And it is likely that there will be opportunities in the future for Tower to grow into a more significant player in the New Zealand market.

And we are fortunate that Rob Flannagan has been building a strong team in the company which will enable the future to be met with confidence. I have no doubt, and I know this is a view shared by the Board, that management of the company is in strong hands and the team is fully committed to building your company and delivering what is needed.

Targets have been set and plans are in place. Work is underway that we are confident will deliver the required results.

We have recently taken a further step that will give Tower more certainty about commencing our much needed computer systems upgrade. Earlier this month we announced plans for an issue of up to $100 million of Senior Bonds. This offer opened yesterday and thanks to the positive preliminary marketing that was done we are delighted that $80 million has been taken up on a firm and reserved basis. The Board is very confident that the remaining $20 million will be snapped up.

The Bonds offer a fixed rate of 8.5% per annum paid quarterly for a term of just over 5 years through to April 2014. We would be pleased to see Tower shareholders supporting the offer and an Investment Statement is available at the registration desk where you came into this meeting. It can also be accessed through Tower’s website. The offer is only available in New Zealand.

Tower will use the proceeds to repay our existing bank facility which in any event would mature in November this year. The surplus will supplement our working capital requirements and will mean that the computer systems upgrade can now get underway.

I will shortly hand over to Rob Flannagan who will talk about last year’s performance in more detail. But before doing that a brief comment would be in order on Tower’s trading so far this year.

Without going into details, I can tell you that for the first 4 months of the year, that is through to 31 January, results are tracking ahead of the same period last year. In the current very challenging economic climate the Board is pleased with this performance.

In addition, as a result of the recent reduction in interest rates, Tower has benefited from a positive revaluation in policyholder liabilities.

Tower has a long and proud history in New Zealand. In fact this year marks the 140[th] anniversary of the establishment of the Company. Over that time thousands of people have contributed to create the company we have today

I would specially like to thank our dedicated management and staff who continue to work very hard to ensure that the company’s targets will be met.

And I wish to acknowledge the work and energy of my fellow Board colleagues. This Board is one that works very well together. It is clear on what has to be done and we will ensure that it is done.

I will now hand over to Rob Flannagan who will take us through last year’s results .

Thank you Tony. Good morning everybody.

As Tony has mentioned the 2008 financial year produced a $40.5m net profit after taxation enabling us to pay a dividend of 8 cents per share fully imputed. This was paid last week.

I will briefly cover some high level items.

Tower is an iconic New Zealand brand. We are building a strongly focussed business, a business that every shareholder can be proud of owning.

We still have much to achieve but our journey is well underway.

The world economic situation has impacted New Zealand and will continue to do so. We have taken a very defensive position as a Group to ensure that we can ride the economic storms. As a result of that our balance sheet is strong, with our gearing at around 14%.

The Bond issue being undertaken at present is to repay bank debt and give us certainty and stability of finances for the next 5 years. This will enable us as a management team to focus on achieving profitable growth and grow shareholder value.

Eric O’Sullivan our Group Chief Financial Officer will take you through the financial results shortly.

We are very focused on profitable growth and our marketing strategies are working. As part of this you would have all seen our television campaign during the year. As a result of this and other initiatives, our General Insurance and Health & Life businesses are achieving positive growth both in policyholder numbers and policyholder revenue.

The Investments business has been impacted by the loss of some mandates and by the investments market. However we are stable and profitable, which, in this market, can be regarded as a success. The performance of our investment team is strong.

Our Pacific Island businesses continue to perform well and provide diversity of markets.

Customer satisfaction and service levels are very strong and as a result our retention rates are high.

We are continuing to invest for the future with a focus on increasing our returns on capital and on improving productivity.

I will now hand over to Eric O'Sullivan our Group Chief Financial Officer to cover the financial results.

Thank you Rob.

As Rob has said, the overall net profit after tax for the year was $40.5m, this is up by 17% from the $34.6m that the Group achieved in 2007.

This represents earnings per share of 21.12 cps (compared with 18.27cps for the prior period) and an annualised return on equity of 14.7% (compared with 14.4% a year ago).

Gearing is 14.6% which is an improvement of 1.9% on the result achieved at the half year.

Half-year on half-year profit shows a consistent trend of improvement over the last two years.

You all have copies of the Annual Report and I simply want to point out some of the key features.

At a high level;

• The Health & Life business has increased its net profit after tax by 25.5% to $28.5m. This followed from an 18% increase in the previous year.

• General Insurance has increased its net profit after tax by 20.3% to $14.8m. Also following a strong increase the previous year.

• Investments was impacted by lower funds under management and the general investment market conditions that the world is experiencing. There was also continuing investment in PIE, in Kiwisaver and in compliance. As a result, profit in 2008 was down by just over 50%.

• Corporate costs have been further reduced in the last year and were down by more than 18%.

Turning to the position for shareholders, the Group result equates to earnings per share of 21.12cents.

The return on equity at 14.7% is also higher than the 14.4% generated last year.

And the result allowed Tower to declare an increased dividend for the full year of 8 cents per share.