TOWER LIMITED — Interim / Quarterly Report 2011

Jun 23, 2011

TOWER Limited TOWER Capital Limited Half Year Reports 2011

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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 through our businesses in New Zealand and the Pacific Islands.

TOWER Group

General Insurance

Health & Life Insurance

Investments

KiwiSaver

For customer enquiries, call TOWER on 0800 808 808 or visit www.tower.co.nz

For investor enquiries, call TOWER on +64 9 369 2000 or Computershare on 0800 222 065 or visit www.tower.co.nz

TOWER Limited TOWER Capital Limited Half Year Reports 2011 For the half year ended 31 March 2011

Contents

Contents
Key information	2
Chairman’s Letter	3
Business Review	4
TOWER Limited Interim Financial Statements	5
TOWER Limited Independent Accountants’ Report	17
TOWER Capital Limited Interim Financial Statements	19
TOWER Capital Limited Independent
Accountants’ Report	26
TOWER Directory	29

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 2011.

TOWER Capital is a subsidiary of TOWER. On 24 March 2009, the company issued fixed rate senior unsecured bonds which are listed on the New Zealand Debt Security Market operated by NZX Limited. The bonds have a face value of $81,759,000 and a fixed rate interest coupon of 8.5%. The bonds mature on 15 April 2014. As a member of the TOWER Group, TOWER Capital is dependent on the financial position and performance of TOWER.

This document is dated 24 June 2011.

Key information

• �Profit�excluding�impact�of�the�September�2010� and�February�2011�Christchurch�earthquakes�and� discount�rate�of�NZ$26.2�million�

• Net�profit�after�tax�of�NZ$13�million

• �Strong�performance�even�after�more�than�NZ$350� million�of�claims�from�the�September�2010�and� February�2011�Christchurch�earthquakes

• �Fully�imputed�interim�dividend�of�NZ4.0�cents� per�share

� Total�equity�of�NZ$447.2�million

2 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

Chairman’s Letter

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Dear Shareholder

TOWER has reported a pleasing financial result for the six months to 31 March 2011 after the Christchurch earthquakes in September 2010 and February 2011. The result was achieved under challenging circumstances with TOWER once again demonstrating the merits of maintaining a strong balance sheet and the value of proactively managing risks and investments.

Excluding costs associated with the earthquakes in Christchurch and the discount rate movement, TOWER reported an after tax profit of NZ$26.2 million compared with NZ$27.7 million for the corresponding period a year earlier.

After the impact of the Christchurch earthquakes and the movement in the discount rate, the net profit for the half year to 31 March 2011 was NZ$13.0 million, down by NZ$15.1 million on the previous year. However, overall equity increased to NZ$447.2 million.

I am delighted to report that the Board decided to again pay an interim dividend of 4 cents per share. The dividend will be fully imputed and matches the interim dividend paid for the same period the previous year, which was the first interim dividend paid since July 2002.

The impact of the Christchurch earthquakes aside, TOWER performed well across its three businesses, whilst changing the business model to focus on improving and strengthening its customer service.

TOWER is a well established company with origins stretching back to 1869 and during the reporting period has reinforced its position as a market leader in providing products and services in insurance, investments and KiwiSaver.

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

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A I (Tony) Gibbs Chairman

The�result�was�achieved�under�challenging� circumstances�with�TOWER�once�again�demonstrating�the� merits�of�maintaining�a�strong�balance�sheet�and�the�value� of�proactively�managing�risks�and�investments.

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 3

Business Review

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The period to 31 March 2011 has been significant for the New Zealand insurance industry. The country’s economic situation has remained difficult but despite this I’m pleased to say that TOWER has come through these challenges very well. TOWER is in a strong position after providing for more than NZ$350 million of claims for the September 2010 and February 2011 Christchurch earthquakes.

In the Health & Life business, profit for the six months to 31 March 2011, excluding the impact of Christchurch and the discount rate movement, is NZ$16.6 million, which is a minimal decrease of NZ$0.3 million compared to the same period last year. This result excludes the loss of NZ$5.7 million resulting from an increase in the discount rate and the NZ$2.1 million net expense in the Life business relating to the Christchurch earthquakes.

General Insurance profit, excluding the impact of the Christchurch earthquakes, has also reduced over the same period from NZ$11.9 million in March 2010 to NZ$10 million in March 2011. This was largely due to a decrease in investment income and an increase in management expenses as a result of restructuring costs and our new business model.

The Investment business profit for the six months to 31

Customers�will�be� able�to�rely�on�TOWER�to� deliver�on�its�promises.

The�country’s� economic�situation�has� remained�difficult�but� despite�this�I’m�pleased�to� say�that�TOWER�has�come� through�these�challenges� very�well.

March 2011 is NZ$3 million, which represents growth of NZ$1 million, or 50%, from the same period last year. Costs have decreased, and there has been a growth in funds under management overall and in KiwiSaver. KiwiSaver membership also increased compared to the same period last year.

The result for the half year has enabled the Board to again declare an interim dividend which will be paid on 4 July 2011. Our dividend reinvestment plan applies with shareholders in New Zealand and Australia able to elect to participate prior to the record date of 17 June 2011. Our strategic goals are focused on profitable growth and we’ll achieve this by being a customer centric organisation, doubling our product penetration per customer, giving our customers access to our full product range through their channel of choice and investing in our staff’s development to drive TOWER’s success. We will continuously deliver a return on equity to our shareholders of at least 12.5%. Customers will be able to rely on TOWER to deliver on its promises. We have transitioned to a functional operating model that leverages all of the Group’s assets in order to support our strategic goals and drive growth. We believe this model will also enable us to effectively meet the challenges of an inflationary economic environment, and continuing regulatory changes such as the prudential supervision regime for insurers and the Financial Advisers Act.

Having regard to the changes that have taken place within TOWER and the environment, we are very comfortable with our position. We are truly a New Zealand and Pacific focused company looking after what our customers value and we’re now in a position for faster growth and enhanced shareholder returns.

Rob Flannagan Group Managing Director

4 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

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TOWER Limited Interim Financial Statements & Independent Accountants’ Report for the Half Year ended 31 March 2011

Table of Contents

Table of Contents
Consolidated income statement	6
Consolidated statement of comprehensive income	7
Consolidated balance sheet	8
Consolidated statement of changes in equity	9
Consolidated statement of cash fows	10
Notes to the interim fnancial statements
1. Summary of signifcant accounting policies	11
2. Impact of Christchurch earthquakes and
discount rate effect	11
3. Premium revenue	12
4. Investment revenue	12
5. Fee and other revenue	13
6. Movement in policyholder liabilities	13
7. Life insurance and investment contract liabilities	13
8. Segmental reporting	14
9. Interest bearing liabilities	15
10. Net assets per share	15
11. Note to consolidated statement of cash fows	16
12. Distributions to shareholders	16
13. Contingent liabilities	16
14. Subsequent events	16
Independent Accountants’ Report	17

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 5

TOWER Limited Consolidated Income Statement

For the half year ended 31 March 2011

		Half year	ended
		31 March	31 March
		2011	2010
		Unaudited	Unaudited
	Note	$000	$000
Revenue
Premium revenue from insurance contracts	3	215,096	209,808
Less : Outwards reinsurance expense	3	(22,517)	(19,622)
Net premium revenue		192,579	190,186
Investment revenue	4	27,420	62,820
Fee and other revenue	5	16,892	16,306
Net operating revenue		236,891	269,312
Expenses
Claims expense		431,630	127,612
Less : Reinsurance recoveries revenue		(299,988)	(5,979)
Net claims expense		131,642	121,633
(Decrease)/increase in policy liabilities	6	(8,351)	8,133
Management and sales expenses		93,850	89,920
Net claims and operating expenses		217,141	219,686
Financing costs		3,836	3,758
Total expenses		220,977	223,444
Proft before taxation		15,914	45,868
Tax expense attributed to policyholders' returns		(102)	(9,498)
Proft attributed to shareholders before taxation		15,812	36,370
Tax expense attributed to shareholders' profts		(2,866)	(8,268)
Proft for the half year	2	12,946	28,102
Proft attributed to:
Shareholders		12,779	27,859
Minority interests		167	243
		12,946	28,102
Basic and diluted earnings per share (cents)		4.88	10.88

The profit for the half year includes the impact of the Christchurch earthquakes and the discount rate effect. Refer to Note 2.

The consolidated income statement should be read in conjunction with the accompanying notes.

6 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Limited Consolidated Statement of Comprehensive Income

For the half year ended 31 March 2011

		Half year ended	Half year ended
		31 March	31	March
		2011		2010
		Unaudited	Unaudited
	Note	$000		$000
Proft for the half year	2	12,946		28,102
Other comprehensive income:
Currency translation differences		2,622		1,097
Other comprehensive income net of taxation		2,622		1,097
Total comprehensive income for the half year		15,568		29,199
Total comprehensive income/(loss) attributed to:
Shareholders		15,648		29,164
Minority interests		(80)		35
		15,568		29,199

The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 7

TOWER Limited Consolidated Balance Sheet

As at 31 March 2011

	31 March 30 September	31 March
	2011 2010	2010
	Unaudited Audited	Unaudited
	Note $000 $000	$000
Assets
Cash and cash equivalents	245,216 207,842	150,562
Receivables	529,494 218,271	137,167
Financial assets at fair value through proft or loss	902,152 953,818	1,075,129
Derivative fnancial assets	52,624 71,217	50,557
Liabilities ceded under reinsurance	7 14,634 16,065	16,631
Property, plant and equipment	6,498 6,629	6,222
Prepaid tax assets	25,587 25,587	36,230
Deferred acquisition costs	42,184 43,587	43,851
Deferred tax assets	9,194 19,606	25,443
Intangible assets	61,677 55,022	46,894
Total Assets	1,889,260 1,617,644	1,588,686
Liabilities
Payables	56,620 53,896	57,539
Current tax liabilities	1,542 3,362	13,796
Other liabilities	- -	22,745
Provisions	6,063 8,525	5,822
Derivative fnancial liabilities	5,550 2,044	15,090
Interest bearing liabilities	9 80,915 80,602	80,284
Non-life insurance liabilities	622,506 328,794	259,638
Deferred tax liabilities	34,068 47,510	35,772
Life insurance and investment contract liabilities	7 634,804 651,579	681,644
Total Liabilities	1,442,068 1,176,312	1,172,330
Net Assets	447,192 441,332	416,356
Equity
Contributed equity	564,624 558,762	555,282
Accumulated losses	(14,216) (12,021)	(32,112)
Reserves	(106,061) (108,332)	(109,540)
Total equity attributed to shareholders	444,347 438,409	413,630
Minority interests	2,845 2,923	2,726
Total Equity	447,192 441,332	416,356

The financial statements were approved for issue by the Board on 26 May 2011.

AI (Tony) Gibbs Chairman

John Spencer Director

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

8 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Limited Consolidated Statement of Changes in Equity

For the half year ended 31 March 2011

		Attributed to shareholders (unaudited)	Attributed to shareholders (unaudited)	Attributed to shareholders (unaudited)	Attributed to shareholders (unaudited)
	Share	Accumulated			Minority	Total
	capital	losses	Reserves	Total	interest	equity
	$000	$000	$000	$000	$000	$000
Half year ended 31 March 2011 At the beginning of the half year Comprehensive income for the period Proft for the half year Currency translation differences	558,762 - -	(12,021) 12,779 -	(108,332) - 2,869	438,409 12,779 2,869	2,923 167 (247)	441,332 12,946 2,622
Total comprehensive income for the period Transactions with shareholders Shares issued under dividend reinvestment plan Shares issued under employee share options scheme Movement in share based payment reserve Dividends paid Movement in treasury shares Other	- 5,221 608 - - 33 -	12,779 - - 706 (15,656) - (24)	2,869 - - (598) - - -	15,648 5,221 608 108 (15,656) 33 (24)	(80) - - - - - 2	15,568 5,221 608 108 (15,656) 33 (22)
Total transactions with shareholders	5,862	(14,974)	(598)	(9,710)	2	(9,708)
At the end of the half year	564,624	(14,216)	(106,061)	444,347	2,845	447,192
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
Proft 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

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

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 9

TOWER Limited Consolidated Statement of Cash Flows

For the half year ended 31 March 2011

		Half year	ended
		31 March	31 March
		2011	2010
		Unaudited	Unaudited
	Note	$000	$000
Cash fows from operating activities
Premiums received		216,269	208,433
Interest received		17,751	18,418
Dividends received		1,239	1,195
Investment income		16,307	17,239
Non-life company fee income		16,892	15,972
Reinsurance received		11,671	14,912
Reinsurance paid		(26,777)	(28,125)
Claims expenses		(147,230)	(148,804)
Payments to suppliers and employees		(106,822)	(88,147)
Interest paid		(3,524)	(3,476)
Income tax paid		(7,446)	(539)
Net cash (outfow)/infow from operating activities	11	(11,670)	7,078
Cash fows from investing activities
Net receipts for fnancial assets		68,694	25,020
Net payments for purchase of property, plant and equipment and intangible assets		(9,234)	(10,505)
Net cash infow from investing activities		59,460	14,515
Cash fows from fnancing activities
Proceeds from issue of share capital		641	585
Dividend paid		(10,435)	(17,276)
Payment of supplementary dividend		(622)	(721)
Net cash (outfow) from fnancing activities		(10,416)	(17,412)
Net increase in cash and cash equivalents		37,374	4,181
Cash and cash equivalents at beginning of half year		207,842	146,381
Cash and cash equivalents at end of half year		245,216	150,562

Note:

The consolidated statement of cash flows presents the net changes in cash flow for financial assets, property, plant and 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.

1 0 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

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.

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 2010, 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 26 May 2011.

The interim financial statements for the six months ended 31 March 2011 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 2010.

Comparatives

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

2. IMPACT OF CHRISTCHURCH EARTHQUAKES AND DISCOUNT RATE EFFECT

The after taxation impact of the Christchurch earthquake and the discount rate is presented to provide a more meaningful comparison of the Group’s profit for the reported financial periods.

With the 22 February 2011 Christchurch earthquake occurring in the first half of its financial year, TOWER has, consistent with its policy on reinsurance, purchased additional cover to maintain its reinsurance position. The high cost of further reinsurance and net claims, together with other costs associated with the Christchurch earthquakes, has increased TOWER’s expenses in the current financial year.

In the half year ended 31 March 2011 these costs amounted to $7,544,000 after taxation. Total net earthquake expenses are expected to amount to $15 million to $20 million after taxation for the year ending 30 September 2011. The costs associated with the 4 September 2010 event amounted to $4,470,000 after taxation. These costs were expensed in the financial statements for the year ended 30 September 2010.

The movement in the discount rate during the March 2011 half year impacted the individual life risk policy liabilities and decreased Group profit after tax. In the comparative period to March 2010 the discount rate created a gain to the 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 led to a change in the value of individual life risk policy liabilities, generating a net expense after tax of $5,729,000 in the period (2010: gain of $376,000).

	Half year ended	Half year ended
	31 March	31	March
	2011		2010
	Unaudited	Unaudited
	$000		$000
Proft for the half year	12,946		28,102
Additional costs associated with Christchurch earthquakes
Outwards reinsurance expense	2,667		-
Claims expenses net of reinsurance recoveries revenue	7,150		-
Management and sales expenses	39		-
Income tax impact	(2,312)		-
Christchurch earthquakes impact after tax	7,544		-
Discount rate effect	5,884		(402)
Income tax impact	(155)		26
Discount rate effect after tax	5,729		(376)
Proft for the half year excluding the impact of Christchurch earthquakes and discount rate	26,219		27,726

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 11

TOWER Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

3. PREMIUM REVENUE

3. PREMIUM REVENUE
	Half year	ended
	31 March	31 March
	2011	2010
	Unaudited	Unaudited
	$000	$000
Life insurance premiums	43,276	42,422
Life investment premiums	207	250
Total life premiums	43,483	42,672
Less: Deposits recognised as an increase in policy liabilities	(219)	(2,114)
Life insurance contract premiums recognised as revenue	43,264	40,558
General insurance premiums	102,123	101,541
Health insurance premiums	69,709	67,709
	215,096	209,808
Less: Reinsurance ceded	(22,517)	(19,622)
Total net premium revenue	192,579	190,186
4. INVESTMENT REVENUE
Fixed interest securities (1)
Interest income	17,751	18,836
Net realised (loss)/gain	(97)	2,282
Net unrealised loss	(1,202)	(534)
	16,452	20,584
Equity securities (1)
Dividend income	1,239	1,195
Net realised loss	(2,103)	(418)
Net unrealised gain	17,496	20,755
	16,632	21,532
Property securities (1)
Property income	1,152	1,124
Net unrealised gain	1,039	2,050
	2,191	3,174
Other (2)
Other investment revenue	62	78
Net realised gain	14,536	13,568
Net unrealised (loss)/gain	(22,453)	3,884
	(7,855)	17,530
Total investment revenue
Total investment revenue	20,204	21,233
Total realised gain	12,336	15,432
Total unrealised (loss)/gain	(5,120)	26,155
	27,420	62,820

(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 derivative financial assets and financial liabilities classified as held for trading at fair value through profit or loss.

1 2 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

5. FEE AND OTHER REVENUE

5. FEE AND OTHER REVENUE	5. FEE AND OTHER REVENUE
Half year ended
31 March	31	March
2011		2010
Unaudited	Unaudited
$000		$000
Investment and management fees 16,841		16,268
Other revenue 51		38
Total fee and other revenue 16,892		16,306
6. MOVEMENT IN POLICYHOLDER LIABILITIES (Decrease)/increase in life insurance contract liabilities (2,829)		6,800
(Decrease)/increase in life investment contract liabilities (1,236)		2,268
(Decrease) in non-current health insurance contract liabilities (4,286)		(935)
(Decrease)/increase in policy liabilities (8,351)		8,133

7. LIFE INSURANCE AND INVESTMENT CONTRACT LIABILITIES

7. LIFE INSURANCE AND INVESTMENT CONTRACT LIABILITIES
31 March 30 September	31 March
2011 2010	2010
Unaudited Audited	Unaudited
$000 $000	$000
Life insurance contract liabilities 602,966 619,820	647,787
Life investment contract liabilities 31,838 31,759	33,857
Total life insurance and investment contract liabilities 634,804 651,579	681,644
Less: Liabilities ceded under reinsurance (14,634) (16,065)	(16,631)
Net life insurance and investment contract liabilities 620,170 635,514	665,013

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.

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 13

TOWER Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

8. SEGMENTAL REPORTING

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Holding
companies
Health Life General and
Insurance Insurance Insurance Investments eliminations Total
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
$000 $000 $000 $000 $000 $000
Half year ended 31 March 2011
Revenue
Revenue - external 71,419 57,701 93,724 16,522 2,645 242,011
Revenue - internal - - 104 2,464 (2,568) 0
Total revenue 71,419 57,701 93,828 18,986 77 242,011
Unrealised investment (loss)/gain [ (1)] (2,033) (3,744) (498) - 1,155 (5,120)
Net operating revenue 69,386 53,957 93,330 18,986 1,232 236,891
Profit before income tax 9,130 7,538 15,260 4,371 (4,800) 31,499
Income tax (expense)/credit (2,648) 2,592 (5,285) (1,346) 1,407 (5,280)
Underlying profit/(loss) for the year 6,482 10,130 9,975 3,025 (3,393) 26,219
Less discount rate [ (2)] - (5,729) - - - (5,729)
- -
Less Christchurch earthquakes [ (3)] (2,150) (5,367) (27) (7,544)
Profit/(loss) for the year 6,482 2,251 4,608 3,025 (3,420) 12,946
Half year ended 31 March 2010
Revenue
Revenue - external 73,433 55,499 95,929 15,565 2,731 243,157
Revenue - internal - - 206 2,674 (2,880) -
Total revenue 73,433 55,499 96,135 18,239 (149) 243,157
Unrealised investment (loss)/gain [ (1)] (2,689) 27,509 1,364 - (29) 26,155
Net operating revenue 70,744 83,008 97,499 18,239 (178) 269,312
Profit before income tax 9,620 20,049 17,489 2,957 (4,623) 45,492
Income tax (expense)/credit (2,886) (9,840) (5,612) (911) 1,483 (17,766)
Underlying profit/(loss) for the year 6,734 10,209 11,877 2,046 (3,140) 27,726
Add discount rate [ (2)] - 376 - - - 376
Profit/(loss) for the year 6,734 10,585 11,877 2,046 (3,140) 28,102
Segment assets
31 March 2011 (Unaudited) 153,844 819,058 719,427 29,843 167,088 1,889,260
30 September 2010 (Audited) 149,426 829,409 430,799 27,047 180,963 1,617,644
31 March 2010 (Unaudited) 154,593 923,687 367,562 42,225 100,619 1,588,686
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Note:

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

(2) 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.

(3) The effect of the Christchurch earthquakes adjusted for tax has been separately disclosed to show their impact on the business segments.

Description of segments

The operating segments are based on assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other operating segments.

Management has determined the operating segments based on the internal reporting reviewed by the Board of Directors (Chief Operating Decision Maker) for the purpose of making decisions on resource allocation and assessing performance.

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

1 4 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

9. INTEREST BEARING LIABILITIES

9. INTEREST BEARING LIABILITIES
	31 March	30 September	31 March
	2011	2010	2010
	Unaudited	Audited	Unaudited
	$000	$000	$000
Fixed rate senior unsecured bonds	83,211	83,220	83,210
Unamortised capitalised costs	(2,296)	(2,618)	(2,926)
	80,915	80,602	80,284

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 $80,915,000 includes $1,452,000 of accrued interest (30 September 2010: $1,460,433 and 31 March 2010: $1,451,000). 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. The bonds are carried at amortised cost using the effective interest method. The amortised costs during the period to 31 March 2011 were $322,000 (30 September 2010: $601,005 and 31 March 2010: $293,000).

The fair value of fixed rate senior unsecured bonds as at 31 March 2011 is $86,280,000 (30 September 2010: $85,464,000 and 31 March 2010: $83,852,000), this has been estimated by reference to the average quoted market price of the underlying debt securities at the end of the period.

10. NET ASSETS PER SHARE

10. NET ASSETS PER SHARE
	Half year ended
	31 March	31	March
	2011		2010
	Unaudited	Unaudited
	$		$
Net assets per share (NZ dollars)	1.70		1.61
Net tangible assets per share (NZ dollars)	1.56		1.47

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 15

TOWER Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

11. NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

	Half year ended	Half year ended
	31 March	31 March
	2011	2010
	Unaudited	Unaudited
	$000	$000
Reconciliation of proft for the period to net cash fows from operating activities
Net proft after tax for the half year	12,946	28,102
Add/(less) non-cash items
Depreciation of property, plant and equipment	1,652	1,677
Amortisation of intangible assets	1,062	921
Change in insurance and life investment contract liabilities	(15,343)	(16,185)
Unrealised loss/(gain) on fnancial assets	5,120	(26,155)
Share based payments expense and movement in fair value of employee share option derivative	109	163
Accrued interest on borrowings	(9)	(11)
Gain on disposal of property, plant and equipment	(5)	-
(Decrease)/increase in deferred tax	(3,030)	4,360
	(10,444)	(35,230)
Add/(less) movements in working capital (excluding the effects of exchange differences
on consolidation)
(Increase)/decrease in receivables	(304,311)	6,905
Increase/(decrease) in payables	291,266	(6,392)
(Increase)/decrease in taxation	(1,449)	13,400
	(14,494)	13,913
Add other items classifed as investing or fnancing activities
Decrease in capitalised costs	322	293
Net cash (outfow)/infow from operating activities	(11,670)	7,078

12. DISTRIBUTIONS TO SHAREHOLDERS

On 25 November 2010 the Directors declared a final dividend for the 2010 financial year of 6 cents per share. The total amount payable was $16,277,649 including supplementary dividend, of which $5,221,002 was paid in TOWER shares under the dividend reinvestment plan and $11,056,647 paid in cash.

The dividend was paid on 25 January 2011.

13. CONTINGENT LIABILITIES

There were no contingent liabilities as at 31 March 2011 (31 March 2010: Nil).

14. SUBSEQUENT EVENTS

(a) Declaration of dividend

On 26 May 2011 the Directors declared a dividend of 4 cents per share. The dividend will be paid on 4 July 2011. Estimated dividend payable including supplementary dividend is $10,958,826.

(b) Earthquake Commission

The Earthquake Commission (EQC) has recently communicated its position on claims in respect of the Christchurch earthquakes, which has the effect of limiting claims to a maximum amount in any policy year.

If this is correct, the EQC limits do not apply per event, and are a maximum aggregate limit in a policy year (unless a payout has been made). This interpretation of the EQC limits has not been accepted as correct and TOWER is disputing the EQC position.

1 6 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Limited Independent Accountants’ Report

For the half year ended 31 March 2011

Independent Accountants’ Report

to the shareholders of TOWER Limited

Report on the Interim Financial Statements

We have reviewed the interim consolidated financial statements (financial statements) of TOWER Limited and its subsidiaries (the Group) on pages 6 to 16, which comprise the balance sheet as at 31 March 2011, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the period then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Interim Financial Statements

The Company’s Directors are responsible for the preparation and presentation of the financial statements that present fairly the financial position of the Group as at 31 March 2011, and its financial performance and cash flows for the period ended on that date.

Accountants’ Responsibility

We are responsible for reviewing the financial statements presented by the Directors in order to report to you 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 financial statements do not present fairly the matters to which they relate.

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

We have reviewed the financial statements of the Group for the period ended 31 March 2011 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 Group other than in our capacities as accountants conducting this review and providers of other assurance, advisory and tax services. These matters have not impaired our independence as accountants of the Group.

PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 17

TOWER Limited Independent Accountants’ Report

For the half year ended 31 March 2011

Independent Accountants’ Report

TOWER Limited

Opinion

Based on our review, nothing has come to our attention that causes us to believe that the financial 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 financial position of the Group as at 31 March 2011 and its financial performance and cash flows for the period ended on that date.

Restriction on Distribution or Use

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.

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Chartered Accountants Auckland 26 May 2011

1 8 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

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TOWER Capital Limited Interim Financial Statements & Independent Accountants’ Report for the Half Year ended 31 March 2011

Table of contents

Table of contents
Statement of comprehensive income	20
Balance sheet	21
Statement of changes in equity	22
Statement of cash fows	23
Notes to the interim fnancial statements
1. Summary of signifcant accounting policies	24
2. Interest income	24
3. Interest bearing liabilities	24
4. Note to statement of cash fows	25
5. Segmental reporting	25
6. Tangible assets value per bond	25
7. Contingent liabilities	25
8. Subsequent events	25
Independent Accountants’ Report	26

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 19

TOWER Capital Limited Statement of Comprehensive Income

For the half year ended 31 March 2011

		Half year	ended
		31 March	31	March
		2011		2010
		Unaudited	Unaudited
	Note	$000		$000
Investment revenue
Interest income	2	4,092		4,077
Other income		7		10
Total investment revenue		4,099		4,087
Financing costs
Interest expense		3,464		3,465
Amortisation of capitalised costs		322		293
Total fnancing costs		3,786		3,758
Proft before tax		313		329
Income tax expense		(94)		(99)
Total proft and comprehensive income for the period attributed to shareholders		219		230

The above statement of comprehensive income should be read in conjunction with the accompanying notes.

2 0 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Capital Limited Balance Sheet

As at 31 March 2011

	31 March 30 September	31 March 30 September	31 March
	2011	2010	2010
	Unaudited	Audited	Unaudited
	Note $000	$000	$000
Assets
Cash and cash equivalents	82	3	-
Related party receivables	85,170	84,697	83,930
Current tax asset	-	-	536
Total assets	85,252	84,700	84,466
Liabilities
Payables	-	38	44
Related party payables	1,929	1,965	2,462
Current tax liabilities	539	349	-
Interest bearing liabilities	3 80,915	80,602	80,284
Deferred tax liabilities	650	746	878
Total liabilities	84,033	83,700	83,668
Net assets	1,219	1,000	798
Equity
Retained earnings	1,219	1,000	798
Total equity	1,219	1,000	798

The financial statements were approved for issue by the Board on 26 May 2011.

AI (Tony) Gibbs Chairman

John Spencer Director

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

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 21

TOWER Capital Limited Statement of Changes in Equity For the half year ended 31 March 2011

	TOTAL EQUITY	TOTAL EQUITY
	Retained	earnings
	31 March	31	March
	2011		2010
	Unaudited	Unaudited
	$000		$000
At beginning of the period	1,000		568
Comprehensive income for the period
Proft for the period	219		230
At end of the period	1,219		798

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

2 2 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Capital Limited Statement of Cash Flows

For the half year ended 31 March 2011

		Half year ended	Half year ended
		31 March	31	March
		2011		2010
		Unaudited	Unaudited
	Note	$000		$000
Cash fows from operating activities
Interest received		4,092		4,122
Interest paid		(3,474)		(3,477)
Payments to suppliers and employees		(31)		-
Net cash infow from operating activities	4	587		645
Cash fows from investing activities
Net advances to related parties		(508)		(647)
Net cash outfow from investing activities		(508)		(647)
Net increase/(decrease) in cash and cash equivalents		79		(2)
Cash and cash equivalents at the beginning of the period		3		2
Cash and cash equivalents at the end of the period		82		-

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

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 23

TOWER Capital Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Entity reporting

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

Statutory base

TOWER Capital Limited 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. The Company was incorporated to undertake an issue of debt securities with the purpose of on-lending the proceeds within the TOWER Limited consolidated Group (the TOWER Group).

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 equivalents 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 2010, 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 26 May 2011.

The interim financial statements for the six months ended 31 March 2011 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 2010.

2. INTEREST INCOME

2. INTEREST INCOME
Half year	ended
31 March	31	March
2011		2010
Unaudited	Unaudited
$000		$000
Interest income - external 15		-
Interest income - TOWER Group companies 4,077		4,077
Total interest income 4,092		4,077

3. INTEREST BEARING LIABILITIES

3. INTEREST BEARING LIABILITIES
	31 March		30 September	31 March
		2011	2010	2010
	Unaudited		Audited	Unaudited
		$000	$000	$000
Fixed rate senior unsecured bonds		83,211	83,220	83,210
Unamortised capitalised costs		(2,296)	(2,618)	(2,926)
		80,915	80,602	80,284

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 $80,915,000 includes $1,452,000 of accrued interest (30 September 2010: $1,460,433 and 31 March 2010: $1,451,000). 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. The bonds are carried at amortised cost using the effective interest method. The amortised costs during the period to 31 March 2011 were $322,000 (30 September 2010: $601,005 and 31 March 2010: $293,000).

The fair value of fixed rate senior unsecured bonds as at 31 March 2011 is $86,759,000 (30 September 2010: $85,464,000 and 31 March 2010: $83,852,000), this has been estimated by reference to the average quoted market price of the underlying debt securities at the end of the period.

2 4 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Capital Limited Notes to the Interim Financial Statements

For the half year ended 31 March 2011

4. NOTE TO STATEMENT OF CASH FLOWS

4. NOTE TO STATEMENT OF CASH FLOWS
	Half year ended
	31 March	31	March
	2011		2010
	Unaudited	Unaudited
	$000		$000
Reconciliation of proft for the period to net cash fows from operating activities
Net proft after tax for the half year	219		230
Less non cash items
Decrease in deferred tax liabilities	(97)		-
Accrued interest on borrowings	(9)		(11)
	(106)		(11)
Add/(less) movements in working capital
Decrease in related party receivables	-		45
Decrease in payables	(38)		(11)
Increase in taxation	190		99
	152		133
Add other items classifed as fnancing activities
Decrease in capitalised costs	322		293
Net cash infow from operating activities	587		645

5. SEGMENTAL REPORTING

TOWER Capital Limited operates in one single business class having undertaken a bond issue to raise funds for use in the operations of the TOWER Group. The chief operating decision maker is considered to be the Board of Directors. The Board meet regularly with management to provide strategic guidance for the Company. The Company operates predominately in one geographical segment, New Zealand. Consequently no segmental information is required.

6. TANGIBLE ASSETS VALUE PER BOND

	Half year ended	Half year ended
	31 March	31	March
	2011		2010
	Unaudited	Unaudited
	$		$
Tangible assets per bond	1.04		1.03

7. CONTINGENT LIABILITIES

There were no contingent liabilities as at 31 March 2011 (31 March 2010: Nil).

8. SUBSEQUENT EVENTS

There have been no material events subsequent to 31 March 2011.

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 25

TOWER Capital Limited Independent Accountants’ Report For the half year ended 31 March 2011

Independent Accountants’ Report

to the shareholder of TOWER Capital Limited

Report on the Interim Financial Statements

We have reviewed the interim financial statements (financial statements) of TOWER Capital Limited on pages 20 to 25, which comprise the balance sheet as at 31 March 2011, statement of comprehensive income, statement of changes in equity and statement of cash flows for the period then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Interim Financial Statements

The Company’s Directors are responsible for the preparation and presentation of the financial statements that present fairly the financial position of the Company as at 31 March 2011, and its financial performance and cash flows for the period ended on that date.

Accountants’ Responsibility

We are responsible for reviewing the financial statements presented by the Directors in order to report to you 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 financial statements do not present fairly the matters to which they relate.

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

We have reviewed the financial statements of the Company for the period ended 31 March 2011 in accordance with the Review Engagement Standards issued by the New Zealand Institute of Chartered Accountants.

We have no relationship with, or interests in, TOWER Capital Limited other than in our capacities as accountants conducting this review and providers of other assurance services. These matters have not impaired our independence as accountants of the Company.

PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz

2 6 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

TOWER Capital Limited Independent Accountants’ Report For the half year ended 31 March 2011

Independent Accountants’ Report TOWER Capital Limited

Opinion Based on our review, nothing has come to our attention that causes us to believe that the financial 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 financial position of the Company as at 31 March 2011 and its financial performance and cash flows for the period ended on that date.

Restriction on Distribution or Use

This report is made solely to the Company’s shareholder, as a body. Our review work has been undertaken so that we might state to the Company’s shareholder 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 shareholder, as a body, for our review procedures, for this report or for the opinions we have formed.

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Chartered Accountants Auckland 26 May 2011

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 27

Notes

2 8 | TOWER Limited & TOWER Capital Limited Half Year Reports 2011

Directory

BOARD OF DIRECTORS

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

CHIEF OPERATING OFFICER Michael Boggs

COMPANY SECRETARY Bronwyn Walsh

REGISTERED OFFICE

New Zealand

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

Australia

C/- PricewaterhouseCoopers Nominees (N.S.W) Pty Ltd PricewaterhouseCoopers Darling Park Tower 2 Level 1 201 Sussex Street Sydney NSW 2000 Australia

AUDITORS

PricewaterhouseCoopers

BANKERS

Westpac New Zealand Limited

SOLICITORS

DLA Phillips Fox

ENQUIRIES

For customer enquiries, call TOWER on 0800 808 808 or visit www.tower.co.nz

For investor enquiries: Telephone: +64 9 369 2000 Email: investor.relations@tower.co.nz Website: www.tower.co.nz

COMPANY NUMBERS

TOWER Limited (Incorporated in New Zealand) NZ Incorporation 979635 ARBN 088 481 234

TOWER Capital Limited NZ Incorporation 2198245

REGISTRAR

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

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.

The TOWER Limited and TOWER Capital Limited Half Year Reports for the period ended 31 March 2011 are available on the TOWER website: www.tower.co.nz

TOWER Limited & TOWER Capital Limited Half Year Reports 2011 | 29

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TOWER Limited & TOWER Capital Limited Investor Relations

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

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 5000 Email: enquiry@computershare.co.nz Website: www.computershare.co.nz/investorcentre