TOWER LIMITED — Interim / Quarterly Report 2010

Jun 29, 2010

TOWER Limited TOWER Capital Limited Half Year Reports 2010

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The TOWER Group has been helping New Zealanders protect and grow the things they value for over 140 years. We provide comprehensive and innovative insurance, KiwiSaver and investment products and services through our businesses in New Zealand and the Pacific Islands.

This document contains the half year reports of both TOWER Limited (TOWER) and TOWER Capital Limited (TOWER Capital) for the half year ended 31 March 2010. The ordinary shares of TOWER are listed on the NZSX and ASX. TOWER Capital is a wholly owned subsidiary of TOWER and the issuer of $81.8 million of senior unsecured bonds listed on the NZDX. As a member of the TOWER Group, TOWER Capital is dependent on the financial position and performance of TOWER.

The previous corresponding period for TOWER was the half year ended 31 March 2009. As TOWER Capital had not completed the first six months of a financial year, it was not required to prepare a half year report for the period ended 31 March 2009. The net tangible assets per share of TOWER as at 31 March 2010 were $1.47 (2009: $1.37). The net tangible assets per bond of TOWER Capital as at 31 March 2010 were $1.03 (2009: $1.00).

TOWER Limited TOWER Capital Limited Half Year Reports 2010

Half Year Reports for the half year ended 31 March 2010

Contents

Contents
Highlights	2
Chairman’s Letter	3
Business Review	4
TOWER Limited Financial Statements	5
TOWER Limited Accountants’ Report	17
TOWER Limited Details of Interim Dividend
and Dividend Reinvestment Plan	18
TOWER Capital Limited Financial Statements	19
TOWER Capital Limited Accountants’ Report	27
TOWER Directory	28

TOWER Group

General Insurance

Health & Life Insurance Investments KiwiSaver

If you would like to contact the TOWER Group please visit www.tower.co.nz or call TOWER on 0800 808 808. This document is dated 23 June 2010.

All amounts in this document, unless otherwise stated, are in New Zealand dollars.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

1

Highlights

� Underlying�Group�profit�increased� 28.8%�to�NZ$27.7�million

� Payment�of�a�fully�imputed�interim� dividend�of�NZ4.0�cents�per�share

� Health�&�Life�underlying�profit�after� tax�up�22.5%�to�NZ$16.9�million

• General�Insurance�profit�after�tax� up�26.6%�to�NZ$11.9�million

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

2

Chairman’s Letter

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Dear Shareholder

TOWER has delivered a strong half year result to 31 March 2010, a credit to the management team and staff who have worked tirelessly to navigate the company through diffi cult economic conditions.

Underlying profi t was $NZ27.7 million, a 28.8 % increase over the comparable period last year. Profi t after tax, which includes the non-cash effect of movements in the discount rate used to value life insurance liabilities, was $NZ28.1 million, 5.6% higher than for the same period last year.

Recognising�this�performance,�the�Board� has�decided�to�pay�a�fully�imputed�interim� dividend�of�NZ4.0�cents�per�share…

Recognising this performance, the Board has decided to pay a fully imputed interim dividend of NZ4.0 cents per share which will be the fi rst interim dividend since July 2002.

While the markets in which TOWER operates have not been conducive to revenue growth in recent periods, the Group has continued to focus on improved management of claims costs and expenses.

The pleasing result in the latest half year period refl ects good performances by all three of TOWER’s businesses: Health & Life, General Insurance and Investments. In uncertain times, this is encouraging. TOWER’s solid fi nancial position provides a ready platform for growth.

The company delivered an annualised 13.7% return on shareholders’ funds and will continue its focus on cost reduction, profi tability and delivery of good returns to its shareholders.

On behalf of the Board, I wish to thank you for your ongoing support of TOWER.

A I (Tony) Gibbs Chairman

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

3

For the half year ended 31 March 2010

Business Review

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I am pleased to report that TOWER has delivered another strong result for the fi rst half of its fi nancial year, amid the continuing volatility in the market.

It refl ects TOWER’s continuing positive progress against the backdrop of a diffi cult economy. Throughout the past year, we have aggressively focused on achieving cost effi ciencies and improving customer services in the Health & Life and General Insurance businesses, and on proactively managing assets in the Investment business. This emphasis on getting the basics right enables TOWER to reinforce its position as a market leader providing products and services in insurance, superannuation, savings and asset management.

Health & Life delivered an underlying profi t after tax of $NZ16.9 million, 22.5% ahead of the March 2009 half year. Net premiums have continued to grow and for the latest half-year are up by $3.5m (around 4%) on the same period last year. Health & Life is maintaining its market position while management expense reductions are leading to increased profi tability.

General Insurance reported a profi t after tax of $NZ11.9 million for the half year, up 26.6% on the comparable period. There was a signifi cant reduction in claims costs attributable to a combination of improved cost management and relatively benign weather related events. Both NZ and Pacifi c operations showed improvement.

In a diffi cult environment for the funds management industry the Investments business continues to adjust to current economic conditions. Total income from fees in the last half year has decreased from $18.8m a year ago to $18.2m, refl ecting overall product rationalisation and growth in the lower margin KiwiSaver and wholesale businesses. Costs were well controlled with a reduction to $15.3 million.

The Group’s good results have been achieved by a very focused and dedicated TOWER management team and staff.

Market conditions will present many challenges and also opportunities over the next six to twelve months. As a New Zealand controlled and managed company we are well positioned to quickly and positively deal with these. We continue to rationalise our products across all businesses, widen our distribution channels and develop direct sales. With a strong balance sheet we are well positioned for continuing the growth of the business to enhance shareholder value.

The fi nancial services industry will go through signifi cant changes over the next few years. New life tax legislation will come into effect on 1 July 2010, and prudential regulation of insurers and new legislation for fi nancial advisors will also be introduced, complementing our expertise in this area. We are ready to benefi t from these higher industry standards.

The implementation of our new computer system is continuing to progress well and it will be fully operational within the next 12 months. This is being well managed and is currently within budget.

Pursuing sustainable and profi table growth in our chosen markets remains the primary focus of TOWER management.

Rob Flannagan Group Managing Director

With�a�strong�balance�sheet�we�are�well� positioned�for�continuing�the�growth�of�the� business�to�enhance�shareholder�value.

4 TOWER Limited & TOWER Capital Limited Half Year Reports 2010

TOWER Limited

Financial Statements & Accountants’ Report

for the half year ended 31 March 2010

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TOWER Limited & TOWER Capital Limited Half Year Reports 2010

5

TOWER Limited Financial Statements For the half year ended 31 March 2010

Contents

Consolidated income statement	Consolidated income statement	7
Consolidated statement of comprehensive income		8
Consolidated balance sheet		9
Consolidated statement of changes in equity		10
Consolidated statement of cash fows		11
Notes to the fnancial statements
1	Summaryof signifcant accounting policies	12
2	Underlying proft after tax	12
3	Premium revenue	12
4	Investment revenue	13
5	Fee and other revenue	13
6	Movement inpolicyliabilities	14
7	Life insurance and investment contract liabilities	14
8	Segmental reporting	15
9	Interest bearingliabilities	16
10	Note to consolidated statement of cash fows	16
11	Distributions to shareholders	16
12	Subsequent events	16

6

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

TOWER Limited Consolidated Income Statement

For the half year ended 31 March 2010

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Half year ended
31 March 31 March
2010 2009
Unaudited Unaudited
Note $000 $000
Revenue
Premium revenue from insurance contracts 3 209,808 213,319
Less : Outwards reinsurance expense 3 (19,622) (17,796)
Net premium revenue 190,186 195,523
Investment revenue/(loss) 4 62,820 (9,087)
Fee and other revenue 5 16,306 17,353
Net operating revenue 269,312 203,789
Expenses
Claims expense 127,612 131,989
Less : Reinsurance recoveries revenue (5,979) (7,252)
Net claims expense 121,633 124,737
Increase/(decrease) in policy liabilities 6 8,133 (49,083)
Management and sales expenses 89,920 95,945
Net claims and operating expenses 219,686 171,599
Financing costs 3,758 3,515
Total expenses 223,444 175,114
Profit before taxation 45,868 28,675
Tax (expense)/credit attributed to policyholders' returns (9,498) 1,952
Profit attributed to shareholders before taxation 36,370 30,627
Tax expense attributed to shareholders' profits (8,268) (4,003)
Profit for the half year 2 28,102 26,624
Profit attributed to:
Shareholders 27,859 26,310
Minority Interests 243 314
28,102 26,624
Basic and diluted earnings per share for profit attributed to shareholders (cents) 10.88 12.98
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The consolidated income statement should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

7

TOWER Limited Consolidated Statement of Comprehensive Income

For the half year ended 31 March 2010

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Half year ended
31 March 31 March
2010 2009
Unaudited Unaudited
Note $000 $000
Profit for the half year 2 28,102 26,624
Other comprehensive income:
Currency translation differences 1,097 2,195
Other comprehensive income net of taxation 1,097 2,195
Total comprehensive income for the half year 29,199 28,819
Total comprehensive income attributed to:
Shareholders 29,164 28,981
Minority Interests 35 (162)
29,199 28,819
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The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

8 TOWER Limited & TOWER Capital Limited Half Year Reports 2010

TOWER Limited Consolidated Balance Sheet

As at 31 March 2010

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31 March 30 September 31 March
2010 2009 2009
Unaudited Audited Unaudited
Note $000 $000 $000
Assets
Cash and cash equivalents 150,562 146,381 152,697
Receivables 137,167 141,253 129,641
Financial assets at fair value through profit or loss 1,075,129 1,076,595 1,024,257
Derivative financial assets 50,557 53,410 65,850
Liabilities ceded under reinsurance 7 16,631 14,450 13,562
Property, plant and equipment 6,222 6,030 7,839
Prepaid tax assets 36,230 34,732 42,737
Current tax assets - 1,164 -
Deferred acquisition costs 43,851 45,096 47,885
Deferred tax assets 25,443 32,650 34,669
Intangible assets 46,894 39,178 36,081
Total Assets 1,588,686 1,590,939 1,555,218
Liabilities
Payables 57,539 62,123 58,242
Current tax liabilities 13,796 - 12,769
Other liabilities 22,745 22,745 21,874
Provisions 5,822 7,594 6,328
Derivative financial liabilities 15,090 21,305 19,256
Interest bearing liabilities 9 80,284 80,002 165,243
Insurance liabilities 259,638 279,700 267,877
Deferred tax liabilities 35,772 38,619 29,680
Life insurance and investment contract liabilities 7 681,644 674,403 666,526
Total Liabilities 1,172,330 1,186,491 1,247,795
Net Assets 416,356 404,448 307,423
Equity
Contributed equity 555,282 547,680 468,633
Accumulated losses (32,112) (35,128) (59,610)
Reserves (109,540) (110,795) (104,458)
Total equity attributed to shareholders 413,630 401,757 304,565
Minority interests 2,726 2,691 2,858
Total Equity 416,356 404,448 307,423
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The financial statements were approved for issue by the Board on 27 May 2010.

AI (Tony) Gibbs Chairman

John Spencer Director

The consolidated balance sheet should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

9

TOWER Limited Consolidated Statement of Changes in Equity

For the half year ended 31 March 2010

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Attributed to shareholders
Accumulated Minority
Share capital losses Reserves Total interest Total equity
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
$000 $000 $000 $000 $000 $000
Half year ended 31 March 2010
At the beginning of the half year 547,680 (35,128) (110,795) 401,757 2,691 404,448
Comprehensive income for the period
Profit for the half year - 27,859 - 27,859 243 28,102
Currency translation differences - - 1,305 1,305 (208) 1,097
Total comprehensive income for the period - 27,859 1,305 29,164 35 29,199
Transactions with shareholders
Shares issued under dividend reinvestment plan 7,046 - - 7,046 - 7,046
Shares issued under employee share options scheme 556 - - 556 - 556
Movement in share based payment reserve - 228 (50) 178 - 178
Dividends paid - (25,043) - (25,043) - (25,043)
Other - (28) - (28) - (28)
Total transactions with shareholders 7,602 (24,843) (50) (17,291) - (17,291)
At the end of the half year 555,282 (32,112) (109,540) 413,630 2,726 416,356
Half year ended 31 March 2009
At the beginning of the half year 465,323 (66,453) (107,670) 291,200 3,020 294,220
Comprehensive income for the period
Profit for the half year - 26,310 - 26,310 314 26,624
Currency translation differences - - 2,671 2,671 (476) 2,195
Total comprehensive income for the period - 26,310 2,671 28,981 (162) 28,819
Transactions with shareholders
Shares issued under dividend reinvestment plan 3,310 - - 3,310 - 3,310
Movement in share based payment reserve - - 541 541 - 541
Dividends paid - (19,467) - (19,467) - (19,467)
Total transactions with shareholders 3,310 (19,467) 541 (15,616) - (15,616)
At the end of the half year 468,633 (59,610) (104,458) 304,565 2,858 307,423
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The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

10

TOWER Limited Consolidated Statement of Cash Flows

For the half year ended 31 March 2010

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Half year ended
31 March 31 March
2010 2009
Unaudited Unaudited
Note $000 $000
Cash flows from operating activities
Premiums received 208,433 212,712
Interest received 18,418 25,480
Dividends received 1,195 1,544
Investment income 17,239 2,456
Non-life company fee income 15,972 18,222
Reinsurance received 14,912 6,170
Reinsurance paid (28,125) (20,765)
Claims expenses (148,804) (138,952)
Payments to suppliers and employees (88,147) (95,756)
Interest paid (3,476) (3,857)
Income tax paid (539) (2,633)
Net cash inflow from operating activities 10 7,078 4,621
Cash flows from investing activities
Net receipts for financial assets 25,020 26,377
Net payments for purchase of property, plant and equipment and intangible assets (10,505) (912)
Net cash inflow from investing activities 14,515 25,465
Cash flows from financing activities
Proceeds from issue of share capital 585 -
Proceeds from issue of fixed rate senior unsecured bonds - 81,759
Payment for issue costs of senior unsecured bonds - (979)
Repayment of short term borrowings - (304)
Dividend paid (17,997) (16,157)
Net cash (outflow)/inflow from financing activities (17,412) 64,319
Net increase in cash and cash equivalents 4,181 94,405
Cash and cash equivalents at beginning of half year 146,381 58,292
Cash and cash equivalents at end of half year 150,562 152,697
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Note:

The consolidated statement of cash flows presents the net changes in cash flow for financial assets, property, plant, equipment and intangible assets. TOWER considers that knowledge of gross receipts and payments is not essential to understanding certain activities of TOWER and it is considered acceptable to report only the net changes in cash flow for these items. This is based on the fact that either the turnover of these items is quick, the amounts are large and the maturities are short or the value of the sales are immaterial.

The consolidated statement of cash flows should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

11

TOWER Limited Notes to the Financial Statements

For the half year ended 31 March 2010

1. SUMMARY Of SigNifiCANT ACCOUNTiNg POLiCiES

Entities reporting

The interim financial statements presented are those of TOWER Limited (the Company) and its subsidiaries (the Group).

Statutory base

TOWER Limited is a company domiciled in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand and Australian Stock Exchanges. The Company is an issuer under the Financial Reporting Act 1993.

The interim financial statements for the six months ended 31 March 2010 are unaudited.

Accounting policies

The principal accounting policies adopted in the preparation of the interim financial statements are consistent with those of the audited annual financial statements as at 30 September 2009.

Comparatives

Where necessary, comparative information has been reclassified to achieve consistency of disclosure with the current period.

Basis of preparation

These interim financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP), as appropriate for profit oriented entities, International Accounting Standard 34, and New Zealand equivalent to International Accounting Standard 34, Interim Financial Reporting.

The interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 September 2009, which have been prepared in accordance with International Financial Reporting Standards, and New Zealand equivalents to International Financial Reporting Standards. The interim financial statements were approved by the Board of Directors on 27 May 2010.

2. UNdERLYiNg PROfiT AfTER TAx

Underlying profit after tax is presented to provide a more meaningful comparison of the Group’s profit for the reported financial periods. The movement in the discount rate during the March 2010 and 2009 half years impacted the individual life risk policy liabilities and increased Group profit after tax.

The discount rate applied to value individual life risk policy liabilities (included within life insurance contract liabilities in Note 7) is based on the current risk-free interest rates. The decline in the risk-free interest rates lead to a change in the value of individual life risk policy liabilities, generating a net gain of $376,000 in the period (2009: $5,078,000).

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Half year ended
31 March 31 March
2010 2009
Unaudited Unaudited
$000 $000
Underlying profit after tax 27,726 21,546
Add:
Discount rate effect before tax 402 5,057
Income tax on discount rate effect (26) 21
discount rate effect after tax 376 5,078
Profit for the half year 28,102 26,624
3. PREMiUM REVENUE
Life insurance premiums 42,422 45,510
Life investment premiums 250 295
Total life premiums 42,672 45,805
Less: Deposits recognised as an increase in policy liabilities (2,114) (8,256)
Life insurance contract premiums recognised as revenue 40,558 37,549
General insurance premiums 101,541 110,350
Health insurance premiums 67,709 65,420
209,808 213,319
Less: Reinsurance ceded (19,622) (17,796)
Total net premium revenue 190,186 195,523
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12 TOWER Limited & TOWER Capital Limited Half Year Reports 2010

TOWER Limited Notes to the Financial Statements

For the half year ended 31 March 2010

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Half year ended
31 March 31 March
2010 2009
Unaudited Unaudited
$000 $000
4. iNVESTMENT REVENUE
fixed interest securities [(1)]
Interest income 18,836 25,480
Net realised gain/(loss) 2,282 (118)
Net unrealised loss (534) (120)
20,584 25,242
Equity securities [(1)]
Dividend income 1,195 1,544
Net realised loss (418) (3,609)
Net unrealised gain/(loss) 20,755 (38,590)
21,532 (40,655)
Property securities [ (1)]
Property income 1,124 647
Net realised gain - 518
Net unrealised gain/(loss) 2,050 (9,662)
3,174 (8,497)
Other [ (2)]
Other investment revenue 78 512
Net realised gain 13,568 5,019
Net unrealised gain 3,884 9,292
17,530 14,823
Total investment revenue/(loss)
Total investment revenue 21,233 28,183
Total realised gain 15,432 1,810
Total unrealised gain/(loss) 26,155 (39,080)
62,820 (9,087)
5. fEE ANd OTHER REVENUE
Investment and management fees 16,268 17,353
Other revenue 38 -
Total fee and other revenue 16,306 17,353
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Note:

(1) The income and loss in these categories has been generated by financial assets designated on initial recognition at fair value through profit or loss.

(2) Other investment income has been generated by financial assets and financial liabilities classified as held for trading at fair value through profit or loss.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

13

TOWER Limited Notes to the Financial Statements

For the half year ended 31 March 2010

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Half year ended
31 March 31 March
2010 2009
Unaudited Unaudited
$000 $000
6. MOVEMENT iN POLiCY LiABiLiTiES
Increase/(decrease) in life insurance contract liabilities 6,800 (48,362)
Increase/(decrease) in life investment contract liabilities 2,268 (4,631)
(Decrease)/increase in non-current health insurance contract liabilities (935) 3,910
increase/(decrease) in policy liabilities 8,133 (49,083)
31 March 30 September 31 March
2010 2009 2009
Unaudited Audited Unaudited
$000 $000 $000
7. LifE iNSURANCE ANd iNVESTMENT CONTRACT LiABiLiTiES
Life insurance contract liabilities 647,787 641,753 637,410
Life investment contract liabilities 33,857 32,650 29,116
Total life insurance and investment contract liabilities 681,644 674,403 666,526
Less: Liabilities ceded under reinsurance (16,631) (14,450) (13,562)
Net life insurance and investment contract liabilities 665,013 659,953 652,964
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The movement in life insurance and investment contract liabilities include movements recognised in the income statement (refer to Note 6), changes in liabilities ceded under reinsurance, deposits and withdrawals and other adjustments, which do not affect the income statement.

14 TOWER Limited & TOWER Capital Limited Half Year Reports 2010

TOWER Limited Notes to the Financial Statements

For the half year ended 31 March 2010

	8. SEgMENTAL REPORTiNg
	Business Segments	Health & Life	general insurance	investments	Other	Total
		Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
		$000	$000	$000	$000	$000
	Half year ended 31 March 2010 Underlying proft/(loss) after tax Add discount rate effect(1)	16,943 376	11,877 -	2,046 -	(3,140) -	27,726 376
	Proft/(loss) for the half year Revenue Operating revenue and realised investment gain/(loss) Unrealised investment gain/(loss)(2)	17,319 128,932 24,820	11,877 96,135 1,364	2,046 18,239 -	(3,140) (149) (29)	28,102 243,157 26,155
	Net operating revenue Half year ended 31 March 2009 Underlying proft/(loss) after tax Add discount rate effect(1)	153,752 13,800 5,078	97,499 9,442 -	18,239 2,306 -	(178) (4,002) -	269,312 21,546 5,078
	Proft/(loss) for the half year Revenue Operating revenue and realised investment gain Unrealised investment loss(2)	18,878 116,095 (36,285)	9,442 106,293 (2,284)	2,306 19,099 -	(4,002) 1,382 (511)	26,624 242,869 (39,080)
	Net operating revenue	79,810	104,009	19,099	871	203,789
	Segment assets 31 March 2010 (Unaudited)	1,078,280	367,562	42,225	100,619	1,588,686
	30 September 2009 (Audited)	1,065,970	388,185	56,933	79,851	1,590,939
	31 March 2009 (Unaudited)	1,032,333	372,236	61,989	88,660	1,555,218

Description of segments

Health & Life includes all health, life and disability insurance services in New Zealand. General Insurance includes all general insurance services in New Zealand and the Pacific Islands. Investments includes all wealth management services in New Zealand. Other includes head office expenses, financing costs and eliminations.

Note:

(1) The discount rate effect, as discussed in Note 2, has been adjusted for tax and shown separately to provide a more meaningful comparison between the reported periods.

(2) Unrealised investment gains and losses have been separately disclosed to show their impact on total revenue of the business segments.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

15

TOWER Limited Notes to the Financial Statements

For the half year ended 31 March 2010

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31 March 30 September 31 March
2010 2009 2009
Unaudited Audited Unaudited
$000 $000 $000
9. iNTEREST BEARiNg LiABiLiTiES
Bank loan - - 86,296
Fixed rate senior unsecured bonds 83,210 83,220 82,185
Unamortised capitalised costs (2,926) (3,218) (3,238)
80,284 80,002 165,243
Bank loan
The bank loan was fully repaid in June 2009.
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Fixed rate senior unsecured bonds

On 24 March 2009, the Group issued $81,759,000 of fixed rate senior unsecured bonds, bearing a fixed interest rate of 8.5% per annum. The bonds mature on 15 April 2014.

The above total of $80,284,000 includes $1,451,000 of accrued interest (30 September 2009: $1,461,000 and 31 March 2009: $426,000). The Group capitalised $3,499,000 of costs associated with the issuance of the bonds. These costs are amortised over the five year term of the bonds using the effective interest rate method.

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Half year ended
31 March 31 March
2010 2009
Unaudited Unaudited
$000 $000
10. NOTE TO CONSOLidATEd STATEMENT Of CASH fLOwS
Reconciliation of profit for the period to net cash flows from operating activities
Net profit after tax for the half year 28,102 26,624
Add/(less) non-cash items:
Depreciation of property, plant and equipment 1,677 1,463
Amortisation of intangible assets 921 1,217
Change in insurance and life investment contract liabilities (16,185) (54,865)
Unrealised (gain)/loss on financial assets (26,155) 39,080
Share based payments expense and movement in fair value of employee share option derivative 163 541
Decrease/(increase) in deferred tax 4,360 (7,566)
(35,219) (20,130)
Add/(less) movements in working capital (excluding the effects of exchange differences on consolidation)
Decrease/(increase) in receivables 6,905 (3,056)
Decrease in payables (6,392) (5,331)
Decrease in taxation 13,400 7,047
13,913 (1,340)
Add/(less) other items classified as investing or financing activities
Increase/(decrease) in interest accrued 282 (533)
Net cash inflows from operating activities 7,078 4,621
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11. diSTRiBUTiONS TO SHAREHOLdERS

On 25 November 2009 the Board of Directors declared a dividend for the 2009 financial year of 9 cents per share net of tax. The total amount payable was $25,043,000 of which $7,046,000 was paid in TOWER shares under the dividend reinvestment plan and $17,997,000 paid in cash.

The dividend was paid on 2 February 2010.

12. SUBSEqUENT EVENTS

On 27 May 2010 the Board of Directors declared a dividend of 4 cents per share net of tax. The dividend will be paid on 2 July 2010.

16 TOWER Limited & TOWER Capital Limited Half Year Reports 2010

TOWER Limited Accountants’ Report For the half year ended 31 March 2010

PricewaterhouseCoopers 188 Quay Street Private Bag 92162 Auckland, New Zealand DX CP24073 www.pwc.com/nz Telephone +64 9 355 8000 Facsimile +64 9 355 8001

Accountants’ Report

To the shareholders of TOWER Limited

The fi nancial statements provide information about the past fi nancial performance and cash fl ows of the Company and its subsidiaries (the Group), for the period ended 31 March 2010 and its fi nancial position as at that date. This information is stated in accordance with the accounting policies set out on page 12. This report is made solely to the Company’s shareholders, as a body. Our review work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an accountants’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our review procedures, for this report, or for the opinions we have formed.

Directors’ responsibilities

that present fairly the fi nancial position of the Group as at 31 March 2010 and its fi nancial performance and cash fl ows for the period ended on that date.

Accountants’ responsibilities

whether, in our opinion and on the basis of the procedures performed by us, anything has come to our attention that would indicate that the fi nancial statements do not present fairly the matters to which they relate.

Basis of opinion

A review is limited primarily to enquiries of company personnel and analytical review procedures applied to fi nancial data and thus provides less assurance than an audit. We have not performed an audit on the fi nancial statements and, accordingly, we do not express an audit opinion. We have reviewed the fi nancial statements of the Group for the period ended 31 March 2010 in accordance with the Review Engagement Standards issued by the New Zealand Institute of Chartered Accountants.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as accountants conducting this review and providers of other assurance and tax services. Review opinion

statements which have been prepared in accordance with International Accounting Standard 34 and New Zealand Equivalent to International Accounting Standard 34: Interim Financial Reporting do not present fairly the fi nancial position of the Group as at 31 March 2010 and its fi nancial performance and cash fl ows for the period ended on that date. Our review was completed on 27 May 2010 and our review opinion is expressed as at that date.

Chartered Accountants Auckland

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

17

TOWER Limited Details of Interim Dividend and Dividend Reinvestment Plan

On 27 May 2010 the Board of Directors declared an interim dividend of 4 cents per share, net of tax, payable on 2 July 2010 (Payment Date) to all shareholders on the register at 5pm on Friday, 18 June 2010 (Record Date).

Shareholders with a New Zealand or Australian address on the Company’s register were eligible to participate in the Company’s Dividend Reinvestment Plan (DRP) by making an election prior to the Record Date. Ordinary shares will be issued on the Payment Date to all shareholders who elect to participate in the DRP at a strike price equal to 97.5% of the volume weighted average price of the Company’s ordinary shares on the NZSX on the five trading days following the Record Date. The cash dividend that would otherwise be payable to these shareholders will be applied to pay up the issue price on the shares issued under the DRP. The shares issued under the DRP will rank equally with all existing ordinary shares of the Company.

If the shareholder is tax resident in New Zealand, the interim dividend will be fully credited with imputation credits in the ratio of 30/70 or 42.85%, being $0.0171429 per share. TOWER will withhold resident withholding tax where applicable.

If the shareholder is not tax resident in New Zealand and holds a shareholding interest of less than 10% in TOWER, the interim dividend will be credited with imputation credits of $0.010084 per share and a supplementary dividend of $0.0070589 per share will be paid. The total ratio of the imputation credits and supplementary dividend is 30/70 or 42.85%. TOWER will withhold non-resident withholding tax where applicable.

If the shareholder is not tax resident in New Zealand and holds a shareholding interest of more than 10% in TOWER, the interim dividend will be fully credited with imputation credits in the ratio of 30/70 or 42.85%, being $0.0171429 per share. TOWER will withhold non-resident withholding tax where applicable.

Shareholders with a New Zealand or Australian address on the Company’s register can elect in respect of any future dividends that may be declared by TOWER:

• to participate in the DRP by completing a Participation Notice. A Participation Notice and the DRP Offer Document can be obtained by contacting the Share Registry, Computershare Investor Services; or

• to be paid cash dividends by direct credit to their nominated bank account by completing a dividend instruction form, which can also be obtained by contacting Computershare Investor Services.

18 TOWER Limited & TOWER Capital Limited Half Year Reports 2010

X

For the half year ended 31 March 2010

TOWER Capital Limited Financial Statements & Accountants’ Report

for the half year ended 31 March 2010

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TOWER Limited & TOWER Capital Limited Half Year Reports 2010

19

TOWER Capital Limited Financial Statements For the half year ended 31 March 2010

Contents

Statement of comprehensive income	21
Balance sheet	22
Statement of changes in equity	23
Statement of cash fows	24
Notes to the fnancial statements
1 Summaryof signifcant accounting policies	25
2 Interest income	25
3 Interest bearingliabilities	25
4 Note to statement of cash fows	26
5 Taxation	26
6 Segmental reporting	26

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

20

TOWER Capital Limited XStatement of Comprehensive Income

For the half year ended 31 March 2010For the half year ended 31 March 2010

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----- Start of picture text -----

Half year Period
ended ended
31 March 31 March
2010 2009
Unaudited Unaudited
Note $000 $000
investment revenue
Interest income 2 4,077 161
Other income 10 -
Total investment revenue 4,087 161
financing costs
Interest expense 3,465 427
Amortisation of capitalised costs 293 -
Total financing costs 3,758 427
Profit/(loss) before tax 329 (266)
Income tax (expense)/credit (99) 80
Total profit/(loss) and comprehensive income/(loss) for the period attributed to shareholders 230 (186)
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The above statement of comprehensive income should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

21

TOWER Capital Limited XBalance Sheet

For the half year ended 31 March 2010As at 31 March 2010

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----- Start of picture text -----

31 March 30 September 31 March
2010 2009 2009
Unaudited Audited Unaudited
Note $000 $000 $000
Assets
Cash and cash equivalents - 2 81,920
Related party receivables 83,930 83,975 -
Current tax asset 5 536 - 80
Total assets 84,466 83,977 82,000
Liabilities
Payables 44 - 2,259
Related party payables 2,462 3,164 980
Current tax liabilities 5 - 243 -
Interest bearing liabilities 3 80,284 80,002 78,947
Deferred tax liabilities 5 878 - -
Total liabilities 83,668 83,409 82,186
Net assets/(liabilities) 798 568 (186)
Equity
Retained earnings/(accumulated losses) 798 568 (186)
Total equity/(deficit) 798 568 (186)
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The financial statements were approved for issue by the Board on 27 May 2010.

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AI (Tony) Gibbs John Spencer Chairman Director

The above balance sheet should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

22

TOWER Capital Limited XStatement of Changes in Equity

For the half year ended 31 March 2010For the half year ended 31 March 2010

		Total equity/deficit
		Retained earnings/
		(accumulated losses)
		Unaudited
		$000
	Half year ended 31 March 2010 At beginning of the half year Comprehensive income for the period Proft for the half year	568 230
	At end of the half year	798
	Period ended 31 March 2009
	At the beginning of the period	-
	Comprehensive loss for the period
	Loss for the period	(186)
	At the end of the period	(186)

The above statement of changes in equity should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

23

TOWER Capital Limited XStatement of Cash Flows For the half year ended 31 March 2010For the half year ended 31 March 2010

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----- Start of picture text -----

Half year Period
ended ended
31 March 31 March
2010 2009
Unaudited Unaudited
Note $000 $000
Cash flows from operating activities
Interest received 4,122 161
-
Interest paid (3,477)
Net cash inflow from operating activities 4 645 161
Cash flows from investing activities
-
Net advances to related parties (647)
Net cash outflow from investing activities (647) -
Cash flows from financing activities
Proceeds from issue of fixed rate senior unsecured bonds - 81,759
Net cash inflow from financing activities - 81,759
Net (decrease)/increase in cash and cash equivalents (2) 81,920
Cash and cash equivalents at the beginning of the period 2 -
Cash and cash equivalents at the end of the period - 81,920
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The above statement of cash flows should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

24

TOWER Capital Limited XNotes to the Financial Statements

For the half year ended 31 March 2010For the half year ended 31 March 2010

1. SUMMARY Of SigNifiCANT ACCOUNTiNg POLiCiES

Entities reporting

The interim financial statements presented are those of TOWER Capital Limited (‘the Company’).

Statutory base

TOWER Capital Limited was incorporated on 18 December 2008. The Company is domiciled in New Zealand, registered under the Companies Act 1993 and issues debt instruments that are listed on the New Zealand Debt Securities Market. The Company is an issuer under the Financial Reporting Act 1993.

Basis of preparation

These interim financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP), as appropriate for profit oriented entities, International Accounting Standard 34, and New Zealand

equivalent to International Accounting Standard 34, Interim Financial Reporting.

The interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 September 2009, which have been prepared in accordance with International Financial Reporting Standards, and New Zealand equivalents to International Financial Reporting Standards.

The interim financial statements were approved by the Board of Directors on 27 May 2010.

The interim financial statements for the six months ended 31 March 2010 are unaudited.

Accounting policies

The principal accounting policies adopted in the preparation of the interim financial statements are consistent with those of the audited annual financial statements as at 30 September 2009.

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Half year Period
ended ended
31 March 31 March
2010 2009
Unaudited Unaudited
$000 $000
2. iNTEREST iNCOME
Interest income - external - 161
Interest income - TOWER Group Companies 4,077 -
Total interest income 4,077 161
31 March 30 September 31 March
2010 2009 2009
Unaudited Audited Unaudited
Note $000 $000 $000
3. iNTEREST BEARiNg LiABiLiTiES
Fixed rate senior unsecured bonds 83,210 83,220 82,185
Unamortised capitalised costs (2,926) (3,218) (3,238)
80,284 80,002 78,947
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fixed rate senior unsecured bonds

On 24 March 2009, the Company issued $81,759,000 of fixed rate senior unsecured bonds, bearing a fixed interest rate of 8.5% per annum. The bonds mature on 15 April 2014.

The above total of $80,284,000 includes $1,451,000 of accrued interest (30 September 2009: $1,461,000 and 31 March 2009: $426,000). The Company capitalised $3,499,000 of costs associated with the issuance of the bonds. These costs are amortised over the five year term of the bonds using the effective interest rate method.

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

25

TOWER Capital Limited Notes to the Financial Statements

For the half year ended 31 March 2010

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Half year Period
ended ended
31 March 2010 31 March 2009
Unaudited Unaudited
$000 $000
4. NOTE TO STATEMENT Of CASH fLOwS
Reconciliation of profit/(loss) for the period to net cash flows from operating activities
Net profit/(loss) after tax for the period 230 (186)
Add/(less) movements in working capital
Decrease in related party receivables 45 -
Increase in related party payables (11) -
Increase/(decrease) in taxation 99 (80)
133 (80)
Add other items classified as investing or financing activities
Interest on borrowings 282 427
Net cash inflow from operating activities 645 161
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5. TAxATiON

As at 31 March 2010, the Company recorded a current tax asset representing the benefit of tax losses incurred to date, and a deferred tax liability in respect of the bond issue costs.

6. SEgMENTAL REPORTiNg

TOWER Capital Limited operates in one single business class having undertaken a bond issue to raise funds for use in operations of TOWER Group. The Company operates predominately in one geographical segment, New Zealand. Consequently no segmental information is required.

26 TOWER Limited & TOWER Capital Limited Half Year Reports 2010

TOWER Capital Limited Accountants’ Report For the half year ended 31 March 2010

PricewaterhouseCoopers 188 Quay Street Private Bag 92162 Auckland, New Zealand DX CP24073 www.pwc.com/nz Telephone +64 9 355 8000 Facsimile +64 9 355 8001

Accountants’ Report

To the shareholders of TOWER Capital Limited

fi nancial statements provide information about the past fi nancial performance and cash fl ows of the Company, for the period ended 31 March 2010 and its fi nancial position as at that date. This information is stated in accordance with the accounting policies set out on page 25.

This report is made solely to the Company’s shareholders, as a body. Our review work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an accountants' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our review procedures, for this report, or for the opinions we have formed.

Directors’ responsibilities

that present fairly the fi nancial position of the Company as at 31 March 2010 and its fi nancial performance and cash fl ows for the period ended on that date.

Accountants’ responsibilities

whether, in our opinion and on the basis of the procedures performed by us, anything has come to our attention that would indicate that the fi nancial statements do not present fairly the matters to which they relate.

Basis of opinion

A review is limited primarily to enquiries of company personnel and analytical review procedures applied to fi nancial data and thus provides less assurance than an audit. We have not performed an audit on the fi nancial statements and, accordingly, we do not express an audit opinion.

accordance with the Review Engagement Standards issued by the New Zealand Institute of Chartered Accountants.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as accountants conducting this review and providers of other assurance services.

Review opinion

statements which have been prepared in accordance with International Accounting Standard 34 and New Zealand Equivalent to International Accounting Standard 34: Interim Financial Reporting do not present fairly the fi nancial position of the Company as at 31 March 2010 and its fi nancial performance and cash fl ows for the period ended on that date.

Our review was completed on 27 May 2010 and our review opinion is expressed as at that date.

Chartered Accountants Auckland

TOWER Limited & TOWER Capital Limited Half Year Reports 2010

27

2010 TOWER Directory

BOARd Of diRECTORS

AI (Tony) Gibbs CNZM (Chairman) Rob Flannagan (Group Managing Director) Bill Falconer CNZM Mike Jefferies John Spencer Susie Staley Denis Wood

gROUP CHiEf fiNANCiAL OffiCER

Eric O’Sullivan

COMPANY SECRETARY

Bronwyn Walsh

gENERAL ENqUiRiES

TOwER insurance Limited

Telephone: +64 9 369 2000 Freephone: 0800 808 808 Facsimile: +64 9 369 2245 Website:www.tower.co.nz

TOwER Health & Life Limited

Telephone: +64 9 369 2000 Freephone: 0800 808 808 Facsimile: +64 9 369 2040 Website:www.tower.co.nz

TOwER investments Limited

iNVESTOR ENqUiRiES

New Zealand

Computershare Investor Services Limited

Level 2, 159 Hurstmere Road, Takapuna, North Shore Private Bag 92119 Auckland 1142

Freephone within New Zealand: 0800 222 065

Telephone New Zealand: +64 9 488 8777

Facsimile New Zealand: +64 9 488 8787

Australia (TOwER Limited Shareholders)

Computershare Investor Services Pty Limited

REgiSTEREd OffiCE

Level 11 TOWER Centre 22 Fanshawe Street PO Box 90347 Auckland Telephone: +64 9 369 2000 Facsimile: +64 9 369 2160

AUdiTOR

PricewaterhouseCoopers

BANkERS

ANZ National Bank Limited

SOLiCiTORS DLA Phillips Fox

Telephone: +64 9 369 2000 Freephone: 0800 808 808 Facsimile: +64 9 369 2128 Website:www.tower.co.nz

iNVESTOR RELATiONS

For investor relations enquiries email investor.relations@tower.co.nz

COMPANY NUMBERS

TOwER Limited (incorporated in New Zealand) NZ Incorporation 979635 ARBN 088 481 234

TOwER Capital Limited NZ Incorporation 2198245

Yarra Falls, 452 Johnston Street Abbotsford VIC 3067

GPO Box 2975EE Melbourne Vic 3000

Freephone within Australia: 1800 501 366

Telephone Australia: +61 3 9415 4083

Facsimile Australia: +61 3 9473 2500

Email: enquiry@computershare.co.nz

Website: www.computershare.co.nz/investorcentre

You can also manage your holdings electronically by using Computershare’s secure website www.computershare.co.nz/investorcentre

This website enables holders to view balances, change addresses, view payment and tax information and update payment instruction and report options.

TOWER recommends shareholders elect to have any payments direct credited to their nominated bank account in New Zealand or Australia to minimise the risk of fraud and misplacement of cheques. Bondholders payments are made in New Zealand dollars only and TOWER also recommends that all interest payments are direct credited to your nominated bank account in New Zealand.

Please quote your CSN number or shareholder number when contacting Computershare.

28

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TOwER Limited & TOwER Capital Limited

Telephone: +64 9 369 2000 Facsimile: +64 9 369 2160 Email: investor.relations@tower.co.nz Website: www.towerlimited.com

REgiSTRAR

Computershare Investor Services Limited Freephone within New Zealand: 0800 222 065 Telephone New Zealand: +64 9 488 8777 Freephone within Australia: 1800 501 366 Telephone Australia: +61 3 9415 4083 Email: enquiry@computershare.co.nz Website: www.computershare.co.nz/investorcentre