TOWER LIMITED — Annual Report 2009

Feb 8, 2010

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CHAIRMAN’S ADDRESS TO THE TOWER ANNUAL MEETING 9 FEBRUARY 2010

Ladies and Gentlemen.

The 2009 financial year saw Tower produce an excellent result. The Group produced a net profit after tax of $50.1 million. Included in this was a little over $3 million which came from changes to the discount rate – something caused by investment market changes and not something that we can control or take any real credit for.

The underlying profit of $46.9 million was a strong performance showing just over a 22% improvement on the comparable result in 2008. Since the separation of TOWER Australia, in December 2006 we have seen net profit after tax continue to grow from the $35 million that year – an improvement of more than 40%.

I am very pleased to note that we have paid another dividend to you our shareholders. We have increased the dividend to 9 cents per share up from the 8 cents per share that was paid last year and 6 cents per share two years ago. Taking into account the new shares issued following the September 2010 rights issue, this is an effective increase of 49%. It is the Board’s intention to continue paying an annual dividend after the end of each financial year provided our profit targets are met.

I am also pleased to report strong support for our Dividend Reinvestment Plan. Many shareholders have now elected to reinvest their dividend back into the company. More than three and a half million shares have been allotted under the plan this year, which means eligible shareholders have reinvested 47% of their dividend in TOWER.

Both the economy and investment market conditions continued to be challenging last year, with TOWER needing to manage delivery of returns to shareholders in a competitive market place. The company’s financial results and share price performance demonstrate our ability to meet these challenges.

From the start of the 2009 financial year till last week, TOWER’s share price has outperformed the market by 16%. This is in addition to paying a dividend of 9 cents per share.

TOWER has also been well supported by the market in relation to the two capital raisings undertaken during the year. In March, TOWER issued $80 million of 5 year unsecured senior bonds, with the proceeds used to repay bank debt. In September, TOWER raised $81 million of equity via a rights issue, which was over-subscribed by 47%. This capital places TOWER in a position to take advantage of strategic opportunities that may arise. I can tell you that we are actively looking at such opportunities continually.

In the meantime Tower continues to continue to look for growth in its existing businesses and product range. Management disciplines in relation to cost control are in place and the project to update ageing computer systems is well underway.

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The financial services and insurance sector in New Zealand is currently subject to an unprecedented degree of regulatory change. This calendar year will see changes to the taxation of life insurance businesses, and the regulation of financial advisers, implemented. Prudential supervision of insurance businesses by the Reserve Bank and best practice antimoney laundering regulations will also impact the industry. TOWER welcomes these changes, which affect all industry participants, and is developing its plans to respond to the changes in business practices and reporting that is required by regulation of this nature.

Over the past couple of years Rob Flannagan has continued to build a strong team which gives the Board confidence the company is well placed to continue its track record of consistent performance in existing operations and to execute the growth opportunities that will emerge.

I will shortly hand over to Rob Flannagan who will talk about last year’s performance in more detail. But before doing this, I will briefly comment on Tower’s trading so far this year.

Without going into details, I can say that for the first 3 months of the year, that is through to 31 December, results are tracking ahead of the same period last year and the Board is pleased with this performance.

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

And I wish to acknowledge the commitment of my fellow Board colleagues. This is a Board that works very well together. The company’s strategy is clear and we will ensure it is executed.

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

Thank you Tony. Good morning Ladies and Gentlemen.

As Tony has mentioned the 2009 financial year produced an excellent result - a $50.1m net profit after taxation enabling us to pay a dividend of 9 cents per share fully imputed. This was paid to our shareholders last week.

This result has been achieved by the Leadership of the Group Executive whom Tony introduced to you earlier. There has been a very strong focus in every area of “getting the basics right” this has been achieved and as consequence the results have followed.

I will now cover some high level items in summary and Eric O’Sullivan, our Group Chief Financial Officer, will take you through the financial results shortly).

As a New Zealand and Pacific company with an iconic brand we are pleased to have delivered a strong result through a period of international financial turmoil. Since the sale of TOWER Australia, we have concentrated on building a strongly focussed business. The business fundamentals are now sound and secure. We are growing in all of our chosen markets.

We do expect market conditions to continue to be challenging over the next six to 12 months. There are good signs that the economy is improving but we not through the down turn yet.

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The capital that we raised last year through our bonds issue and rights issue give us a strong and flexible balance sheet. We are well positioned to take advantage of opportunities that will add shareholder value and this is a focus for the Board and for me.

Profitable growth remains our firm goal and we have continued to enjoy success with our marketing strategies developed to support this goal. You would have all seen our television campaigns during the year for the main TOWER brand as well as our FinTel brand which provides simple, affordable general insurance products.

As a result of both of our marketing initiatives and focus on getting the basics right, our strong result came from very good growth across every one of TOWER’s three businesses – Health & Life, General Insurance, and Investments. Customer satisfaction and service levels remain strong, and that means that our retention rates are also high.

As the Chairman indicated, there is substantial change in the wings with the regulatory environment for insurance and financial services companies. Over the next 5 years the life industry will reinvent itself as a result of the tax changes coming into effect mid 2010. The regulation for financial advisers complements our current expertise and is a core competency for TOWER.

Our new computer system installation will be complete in the next 18 months, with implementation being carried out in a staged approach. This project is well managed and is within budget.

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

Thank you Rob.

I just want to share with you some of the key achievements reflected in the Group results for the 2009 financial year.

The overall net profit after tax for the year was $50.1m, an increase of almost 24% from the $40.5m the year before. These numbers include the non-cash effect of movements in the discount rate used to value Life insurance policy liabilities. Changes in this rate generated a net gain to TOWER in 2009 of $3.2 m. If this is excluded from our comparison, the growth in underlying profit from 2008 to 2009 has been 22.1%

Earnings per share were 24.3cents which was up from 20.1 cents the previous year. This is calculated on the weighted average of shares on issue during the year so is impacted only very slightly by the new shares issued on 28 September 2009.

Annualised return on shareholders equity was 16.1% compared with 14.7% for the prior year.

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Gearing (or debt to debt plus equity) was 16.5% which is an improvement from the 22.9% at the end of the previous year. And net asset backing at 30 September 2009 was $1.59 per share – up 6 cents.

As the Chairman has already noted, the dividend was 9 cents per share – up from 8 cents paid a year ago. And it was paid on the increased capital which resulted from the September rights issue.

Profit has consistently improved over the last three years.

At a high level:

The Health & Life business increased its underlying net profit after tax by 19.7% to $31.6m.

General Insurance increased its net profit after tax by almost 17% to $17.3m.

Investments had a good turn around from 2008 with a 57% increase in net profit after tax to $5.8m.

Finance and corporate costs show an increase to $7.8m reflecting some favourable tax adjustments last year which have not recurred in 2009.

The discount rate changes added $3.2 million in the latest year.

Overall the Group net profit after tax has risen from $35.2m in 2007 to $40.5m in 2008, and exceeded $50m in 2009.

So those are TOWER’s financial highlights for 2009.

I’ll now hand back to the Chairman.

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