TOWER LIMITED — Interim / Quarterly Report 2013

Jun 27, 2013

TOWER Limited TOWER Capital Limited A focused general insurer Half year report 2013

Investment highlights

For the half year ended 31 March 2013

Planned additional return to shareholders:

11 m $ 4.5

Released capital on sale of three businesses:[1] m $370

(subject to the settlement of Life business sale)

Return to shareholders:[2]

Half year profit:

$120m

2m $44.

Declared unimputed dividend:

c per share 5

• 1 Health and Investments business sales completed. Life sale is expected to settle in July 2013, subject to satisfaction of the settlement conditions, including regulatory approval.

• 2 Ratio for return resulted in final amount paid to shareholders being $119,227,499.52

TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited TOWER Capital Limited Half year reports

For the half year ended 31 March 2013

Contents
Report from the Board	02
Performance
TOWER Limited Interim Financial Statements	07
TOWER Limited Independent Accountant’s Report	30
TOWER Capital Limited Interim Financial Statements	31
TOWER Capital Limited Independent Accountant’s Report	39
TOWER Directory	40

01

Report from the board

A period of focused change

The half year to 31 March 2013 has been a time of positive change for TOWER. We will now be a focused General Insurer and have made significant progress towards right sizing the business.

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TOWER has now successfully concluded activities associated with our strategic review having completed the sales of our Health and Investments businesses and, more recently, announcing the sale of Life to Fidelity Life Assurance Company Limited[1] . These three sales will release capital of $370 million and have resulted in TOWER becoming a simpler, more agile and easily understood business.

While undertaking the strategic review divestment programme, TOWER has also achieved a solid operating result from our General Insurance business which will lay a strong foundation for our future.

Key half year highlights include:

• Achieving a half year profit of $44.2 million, a solid result as it also reflects increased provisioning for Christchurch

• Returning $120 million to shareholders in April

• Announcing intention to return a further $114.5 million to shareholders once the Life sale is concluded

• Declaring payment of an unimputed dividend of 5 cents per share

• Announcing intention to repay bonds of $81.8 million once the Life sale is concluded

• Post capital returns and bond repayments, TOWER’s residual business is expected to benefit from over $127 million capital above minimum solvency requirements

• Adopting a future dividend payout policy ratio of 90-100% of NPAT.

In planning for our future as a focused General Insurer, we have already made provision for costs and other one-off items required to right size the business.

02 TOWER Limited and TOWER Capital Limited half year reports 2013

Strong platform for growth

These include costs associated with the sale of Life process which is yet to settle and, as a consequence of the reduced size of the TOWER group, a write down in value of our IT systems by $34.5 million ($24.8 million after tax).

We have also agreed to sell our Australian workers compensation liabilities[2] which releases $21 million in capital and incurs a $6 million loss relative to its previous holding.

TOWER continues to make strong progress in settling claims relating to the Christchurch earthquake events. Of the 18,800 claims lodged with TOWER, 64% have been settled and closed. This rate of settlement compares extremely favourably to the industry average which currently sits at 35% by value for domestic policies.

However, along with many New Zealand insurers, TOWER has made additional provision for Christchurch earthquake claims based on the latest actuarial advice received. The reasons for this are three-fold: Inflationary pressures in Christchurch continue at high levels which are impacting building costs; the pace of claims settlements has slowed due to difficulty and delays experienced in obtaining EQC data and continued apportionment and land issues; and TOWER is continuing to receive new or amended claims. As a result, we have increased claims provisions by $19.7 million ($14.2 million after tax).

Despite undertaking complex initiatives associated with the strategic review and addressing the ongoing issues relating to Christchurch, we have delivered a solid result, returned considerable capital and added value for our shareholders. The foundations for a successful new era as a focused General Insurer have been laid.

1 Life sale is expected to settle in July 2013, subject to satisfaction of the settlement conditions, including regulatory approval

“ For more than 140 years, the one constant at TOWER has been change. We have proven our ability to adapt and evolve in order to thrive , and deliver value to our shareholders.”

Michael Stiassny Chairman

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2 Subject to regulatory and court approval

03

Report from the board

Realising the opportunity

By 2017, total gross written premiums (GWP) in New Zealand are forecast to rise to $5.6 billion or 5 per cent per annum, creating opportunites for TOWER. We are getting ready to realise this opportunity.

The rationale for TOWER’s move to become a focused General Insurer is three-fold:

Firstly: there is a compelling market opportunity in General Insurance. As at September 2012, total market GWP stands at $4.4 billion and TOWER has a 4.6% market share. However, within the personal lines category, TOWER is the third largest player with an 8.2% market share and it is here we believe our strength is underestimated.

There is a distinct opportunity for TOWER to be a customer focused competitor to the big Australian brands.

In addition, in the wake of the Christchurch earthquakes and global weather events, there is an increased awareness of the need for quality general insurance and appropriate levels of cover.

Secondly: we have identified a direction that enables us to leverage a core competency. Put simply, we are able to focus on what we do well, but do it even better.

By focusing on creating the best customer experience, coupled with our ability to have complete control over that experience via our controlled distribution channel approach, TOWER is in a strong position to improve market penetration.

We also hold significant market share and are a leading insurer in the Pacific Islands where our business is more strongly focused on the commercial sector.

Total GWP projected growth

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$5.6bn [2]
$4.4bn [1]
2012 2017
Current GWP Forecast GWP
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• 1 Source: ICNZ September 12 Market Share Report.

2 Source: Business Monitor International NZ Insurance Report Q1 2013

04 TOWER Limited and TOWER Capital Limited half year reports 2013

[Focused] General Insurer

Thirdly: given the market structure, the General Insurance business has great potential to produce long-term sustainable returns.

Our focus will be on enhancing our customer value proposition.

We are going to ensure we know our customers better than our competitors know theirs. This will involve utilising our new computer system to enable more flexibility and making it easy for customers to connect with us when and how they want to.

We are becoming a more focused business, which means we are able to reduce the number of variations of policy terms and simplify our product range. The business will also benefit from restructuring to reduce costs as a singular focused company.

TOWER needs to become more customerfocused which means we are moving to a multi-skilled service model where one person can help a customer with sales, service and claims. By moving decision making to the front line and developing a more customer centric culture, we can enable and empower our people so that our customers will enjoy an improved service experience.

“ We are confident that as a simpler, focused and more agile business in a sector that is poised for growth, TOWER’s future is bright .”

Rob Flannagan Group Managing Director

We are revising policy terms in line with the new requirements of the reinsurers, and this will lead to stronger risk control.

Our reinsurance programme has been expanded post the Christchurch experience and is constantly under review ensuring that we are adequately protected.

And finally, we are focused on strong risk management and governance and have taken a proactive approach with regulators as we transition to a full licence under the Insurance (Prudential Supervision) Act 2010.

05

Report from the board

Looking forward

The investor outlook is positive. TOWER represents an attractive growth story.

[Compelling ] value proposition

Growth prospects

• Strong independent participant in growth market with restored profitability levels

• Well positioned business empowered with specialist General Insurance focus

• Opportunity to rationalise costs through organisational restructure

• Risk profile of General Insurers contained through revised policy terms.

Strongly capitalised business

• Further excess capital is considered to exist within the general insurance business (post planned capital returns)

• Additional capital will support future GWP growth or enable a future release and distribution of capital

• Cash generative business to support attractive proforma dividend yield.

Potential for further value

• Potential to realise further value and capital from non-core assets in the short-run

• Board and management structure currently under review to align with specialist General Insurance business focus

• Positive current trading conditions support continued GWP growth

• Long term outlook for profitability is strong, however the 2013 NPAT will be impacted by identified one-off items, and the cost of right sizing the group.

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Michael Stiassny Chairman

Rob Flannagan Group Managing Director

06 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Interim Financial Statements and Independent Accountant’s Report

For the half year ended 31 March 2013

Table of contents
Consolidated Income Statement	08
Consolidated Statement of Comprehensive Income	09
Consolidated Balance Sheet	10
Consolidated Statement of Changes in Equity	11
Consolidated Statement of Cash Flows	12
Notes to the Interim Financial Statements
1. Summary of significant accounting policies	13
2. Premium revenue	14
3. Investment revenue	15
4. Movement in policy liabilities	15
5. Provisions	16
6. Life insurance and investment contract liabilities	17
7. Segmental reporting	18
8. Interest bearing liabilities	19
9. Net assets per share	19
10. Note to consolidated statement of cash flows	20
11. Distributions to shareholders	20
12. Life insurance liability discount rate	21
13. Impact of Christchurch earthquakes	21
14. Subsequent events	21
15. Discontinued operations and disposal groups held for sale	22
Independent Accountant’s Report	30

07

Performance

TOWER Limited Consolidated Income Statement

For the half year ended 31 March 2013

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Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
Note $000 $000
Revenue
Premium revenue from insurance contracts 2 135,599 119,531
Less: Outwards reinsurance expense 2 (23,527) (19,987)
Net premium revenue 112,072 99,544
Investment revenue 3 28,247 45,432
Fee and other revenue 93 59
Net operating revenue 140,412 145,035
Expenses
Claims expense 151,445 71,097
Less: Reinsurance recoveries revenue (48,496) 2,547
Net claims expense 102,949 73,644
(Decrease)/increase in policy liabilities 4 (211) 7,453
Management and sales expenses 37,711 43,818
Net claims and operating expenses 140,449 124,915
Financing costs 3,974 3,924
Total expenses 144,423 128,839
(Loss)/profit before taxation (4,011) 16,196
Tax expense attributed to policyholders’ returns (297) (5,246)
(Loss)/profit attributed to shareholders before taxation (4,308) 10,950
Tax expense attributed to shareholders’ profits (3,510) (4,705)
(Loss)/profit for the half year from continuing operations (7,818) 6,245
Profit for the half year from discontinued operations 15 666 17,320
Profit from disposal of subsidiaries 15 51,352 –
Profit for the half year 12 44,200 23,565
Profit/(loss) attributed to:
Shareholders 44,213 23,378
Minority interests (13) 187
44,200 23,565
Basic and diluted earnings per share for continuing operations (cents) (2.91) 2.35
Basic and diluted earnings per share for discontinued operations (cents) 19.33 6.52
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The consolidated income statement should be read in conjunction with the accompanying notes.

08 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Consolidated Statement of Comprehensive Income For the half year ended 31 March 2013

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Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
Note $000 $000
Profit for the half year 44,200 23,565
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Gains on asset revaluation 123 –
Deferred income tax relating to asset revaluation (18) –
Currency translation differences (2,403) 697
Other comprehensive income net of taxation (2,298) 697
Total comprehensive income for the half year 41,902 24,262
Total comprehensive income/(loss) attributed to:
Shareholders 41,962 24,144
Minority interests (60) 118
41,902 24,262
Total comprehensive income attributed to equity
shareholders arises from:
Continuing operations (10,116) 6,942
Discontinued operations/disposal groups held for sale 15 52,018 17,320
41,902 24,262
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The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

09

Performance

TOWER Limited Consolidated Balance Sheet

As at 31 March 2013

		31 March	31 September	31 March
		2013	2012	2012
		Unaudited	Audited	Unaudited
	Note	$000	$000	$000
Assets
Cash and cash equivalents		255,205	186,477	192,064
Receivables		581,595	532,162	576,305
Financial assets at fair value through profit or loss		856,896	853,427	929,424
Derivative financial assets		79,513	91,026	74,259
Liabilities ceded under reinsurance	6	–	17,617	17,347
Property, plant and equipment		4,827	5,529	5,579
Prepaid tax assets		–	–	5,822
Current tax assets		9,923	3,615	–
Deferred acquisition costs		17,574	23,467	43,594
Deferred tax assets		25,300	15,906	20,577
Intangible assets		36,912	68,822	78,840
Assets		1,867,745	1,798,048	1,943,811
Assets of disposal groups classified as held for sale	15	35,196	167,546	–
Total Assets		1,902,941	1,965,594	1,943,811
Liabilities
Payables		45,704	56,772	57,942
Current tax liabilities		–	–	2,099
Provisions	5	19,631	7,097	6,188
Derivative financial liabilities		985	170	50
Interest bearing liabilities	8	82,370	81,990	81,607
Insurance liabilities		537,314	563,779	658,216
Deferred tax liabilities		5,682	47,472	49,748
Life insurance contract liabilities	6	689,936	591,458	582,660
Life investment contract liabilities	6	28,265	27,476	28,745
Liabilities		1,409,887	1,376,214	1,467,255
Liabilities of disposal groups classified as held for sale	15	(31,218)	90,591	–
Total Liabilities		1,378,669	1,466,805	1,467,255
Net Assets		524,272	498,789	476,556
Equity
Contributed equity		572,805	572,805	568,644
Accumulated profit		63,066	33,546	14,611
Reserves		(112,678)	(109,005)	(109,149)
Total equity attributed to shareholders		523,193	497,346	474,106
Minority interests		1,079	1,443	2,450
Total Equity		524,272	498,789	476,556

The interim financial statements were approved for issue by the Board on 27 May 2013.

Michael P Stiassny Chairman

John L Spencer Director

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

10 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Consolidated Statement of Changes in Equity For the half year ended 31 March 2013

			Attributed	to shareholders (unaudited)	to shareholders (unaudited)	to shareholders (unaudited)
		Share capital $000	Accumulated profit/(loss) $000	Reserves $000	Total $000	Minority interests $000	Total equity $000
	Half year ended 31 March 2013 At the beginning of the half year Comprehensive income for the period Profit/(loss) for the half year Other comprehensive income Gains on asset revaluation Deferred income tax relating to asset revaluation Currencytranslation differences	572,805 – – – –	33,546 44,213 – – –	(109,005) – 123 (18) (2,356)	497,346 44,213 123 (18) (2,356)	1,443 (13) – – (47)	498,789 44,200 123 (18) (2,403)
	Total comprehensive income/(loss) for the period Transactions with shareholders Movement in share based payment reserve Dividends paid Minority interest dividend paid Other	– – – – –	44,213 1,455 (16,148) – –	(2,251) (1,423) – – 1	41,962 32 (16,148) – 1	(60) – – (304) –	41,902 32 (16,148) (304) 1
	Total transactions with shareholders	–	(14,693)	(1,422)	(16,115)	(304)	(16,419)
	At the end of the halfyear	572,805	63,066	(112,678)	523,193	1,079	524,272
	Half year ended 31 March 2012
	At the beginning of the half year	567,031	(4,352)	(109,688)	452,991	2,526	455,517
	Comprehensive income for the period
	Profit for the half year	–	23,378	–	23,378	187	23,565
	Currencytranslation differences	–	–	766	766	(69)	697
	Total comprehensive income
	for the period	–	23,378	766	24,144	118	24,262
	Transactions with shareholders
	Shares issued under dividend
	reinvestment plan	1,613	–	–	1,613	–	1,613
	Movement in share based payment reserve	–	278	(227)	51	–	51
	Dividends paid	–	(5,304)	–	(5,304)	–	(5,304)
	Minority interest dividend paid	–	–	–	–	(194)	(194)
	Other	–	611	–	611	–	611
	Total transactions with shareholders	1,613	(4,415)	(227)	(3,029)	(194)	(3,223)
	At the end of the halfyear	568,644	14,611	(109,149)	474,106	2,450	476,556

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

11

Performance

TOWER Limited Consolidated Statement of Cash Flows

For the half year ended 31 March 2013

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Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
Note $000 $000
Cash flows from operating activities
Premiums received 199,040 230,150
Interest received 20,256 18,261
Dividends received 1,449 1,188
Investment income 10,190 21,011
Non-life company fee income 15,917 17,300
Reinsurance received 72,035 64,242
Reinsurance paid (41,229) (36,724)
Claims expenses (194,348) (195,884)
Payments to suppliers and employees (87,835) (87,121)
Interest paid (3,594) (3,475)
Income tax paid (2,405) (6,493)
Net cash (outflow)/inflow from operating activities 10 (10,524) 22,455
Cash flows from investing activities
Net receipts/(payments for) from financial assets 43,518 (42,945)
Net payments for purchase of property, plant
and equipment and intangible assets (5,860) (7,342)
Cash disposed with sale of subsidiaries (57,557) –
Proceeds from sale of health business 102,346 –
Net cash inflow/(outflow) from investing activities 82,447 (50,287)
Cash flows from financing activities
Dividends paid (16,148) (3,691)
Payment of supplementary dividends – (200)
Payment of minority interest dividends (304) (194)
Net cash outflow from financing activities (16,452) (4,085)
Net increase/(decrease) in cash and cash equivalents 55,471 (31,917)
Cash and cash equivalents at beginning of half year 186,477 223,981
Cash classifed as held for sale at the beginning of the year 15 13,257 –
Cash and cash equivalents at end of half year 255,205 192,064
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The consolidated statement of cash flows should be read in conjunction with the accompanying notes.

12 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

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 2012, which have been prepared in accordance with International Financial Reporting Standards, and New Zealand Equivalents to International Financial Reporting Standards.

The interim financial statements for the six months ended 31 March 2013 are unaudited.

Accounting policies

The principal accounting policies adopted in the preparation of these interim financial statements are consistent with those of the audited annual financial statements for the year ended 30 September 2012.

Cash flows

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.

Discontinued operations and disposal groups

Assets and liabilities of a disposal group are classified as held for sale if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. A disposal group is defined as a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction. The group includes goodwill acquired in a business combination if the group is a cash-generating unit to which goodwill has been allocated. This condition is regarded as being met only when the sale is highly probable and the assets or businesses are available for immediate sale in their present condition or is a subsidiary acquired exclusively with a view to resale.

Assets and liabilities of a disposal group are measured at the lower of carrying amount and fair value less costs to sell and disclosed on the balance sheet. Items in the Income Statements and Statements of Comprehensive Income relating to the discontinued operations are shown separately on the face of the statements.

Cash flows associated with discontinued operations are disclosed in note 15.

On 30 November 2012, TOWER Limited sold its health insurance business, TOWER Medical Insurance Limited. The sale of TOWER Medical Insurance Limited has resulted in the health insurance business segment being treated as a discontinued operation, which was disclosed as a disposal group held for sale at 30 September 2012. The sale is disclosed in more detail in note 15(A).

On 26 February 2013, TOWER Limited announced the sale of its investment business comprising, TOWER Managed Funds Limited, TOWER Managed Funds Investments Limited, TOWER Employee Benefits Limited, TOWER Asset Management Limited and TOWER Investments Limited. The sale was completed on 2 April 2013 and resulted in the investment business segment being treated as a discontinued operation in these interim financial statements. The sale is disclosed in more detail in note 15(B).

On 10 May 2013, TOWER Limited announced the sale of most of its non-participating life insurance business to Fidelity Life Assurance Company Limited. The sale of the non-participating life business has resulted in the segment being treated as a discontinued operation, which has been disclosed as a disposal group held for sale in these interim financial statements. The sale is disclosed in more detail in note 15(C).

13

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

1. Summary of significant accounting policies (continued)

During the period the directors of TOWER Insurance Limited (a subsidiary of the Company), approved the disposal of the Company’s general insurance run-off business in its Australian branch to an Australian domiciled entity. The transaction will include disposing of all policies written or assumed by the branch and all the associated assets and liabilities under those policies. Subsequent to the disposal of the policy liabilities and related assets, the balance of the Australian branch assets will be repatriated to New Zealand and the operations of the branch will be discontinued. The sale is disclosed in more detail in note 15(D).

Comparatives

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

2. Premium revenue

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Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Life insurance premiums 4,800 5,664
Life investment premiums 235 178
Total life premiums 5,035 5,842
Less: Deposits recognised as an increase in policy liabilities (244) (189)
Life insurance contract premiums recognised as revenue 4,791 5,653
General insurance premiums 130,808 113,878
135,599 119,531
Less: Outwards reinsurance expense (23,527) (19,987)
Total net premium revenue 112,072 99,544
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14 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

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3. Investment revenue
Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Fixed interest securities [(1)]
Interest income 19,383 16,383
Net realised (loss)/gain (4,670) 3,511
Net unrealised loss (72,041) (5,602)
(57,328) 14,292
Equity securities [(1)]
Dividend income 1,449 1,188
Net realised gain/(loss) 3,732 (1,363)
Net unrealised gain 80,965 14,687
86,146 14,512
Property securities [(1)]
Property income 680 1,137
Net realised gain 1,973 1,499
Net unrealised gain/(loss) 916 (2,420)
3,569 216
Other [(2)]
Other investment revenue 31 15
Net realised gain 8,117 12,536
Net unrealised (loss)/gain (12,288) 3,861
(4,140) 16,412
Total investment revenue
Total investment revenue 21,543 18,723
Total realised gain 9,152 16,183
Total unrealised (loss)/gain (2,448) 10,526
28,247 45,432
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(1) The gains and losses in these categories have been generated by financial assets designated on initial recognition at fair value through profit or loss. (2) Other investment gains and losses have been generated by derivative financial assets and financial liabilities classified as held for trading at fair value through profit or loss.

4. Movement in policy liabilities

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Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Increase in life insurance contract liabilities 1,357 9,143
Decrease in life investment contract liabilities (1,568) (1,690)
(Decrease)/increase in policy liabilities (211) 7,453
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15

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

5. Provisions

5. Provisions
	31 March	30 September	31 March
	2013	2012	2012
	Unaudited	Audited	Unaudited
	$000	$000	$000
Business separation	16,570	2	44
Employee benefits	3,061	7,095	6,144
Totalprovisions	19,631	7,097	6,188
Analysed as:
Current	18,153	7,097	6,188
Non current	1,478	–	–
	19,631	7,097	6,188
Business separation
Opening balance at 1 October	2	57	57
Additions	17,601	–	–
Amount utilised in theperiod	(1,033)	(55)	(13)
Closingbalance at end ofperiod	16,570	2	44

Health business

Separation costs of $2,500,000 relating directly to the sale of the health business were provided for at 30 November 2012. As at 31 March 2013 $1,033,000 of the provision has been utilised for legal, consultancy and IT related costs. The remaining balance is expected to be fully utilised by November 2013.

Investments business

Separation costs of $4,866,000 relating directly to the sale of the investments business were provided for at 31 March 2013. The provision relates to legal, consultancy and IT related separation costs and is expected to be fully utilised by March 2014.

Non-participating life business

Separation costs of $10,235,000 relating directly to the sale of the non-participating life business were provided for at 31 March 2013. The provision relates to legal, consultancy and IT related separation costs and is expected to be fully utilised by June 2015.

Further details of the discontinued operations to which these provisions relate are disclosed in note 15.

Employee benefits

Employee benefits include provisions for holiday pay and long service leave.

16 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

6. Life insurance and investment contract liabilities

6. Life insurance and investment contract liabilities
31 March 30 September	31 March
2013 2012	2012
Unaudited Audited	Unaudited
$000 $000	$000
Life insurance contract liabilities 689,936 591,458	582,660
Life investment contract liabilities 28,265 27,476	28,745
Total life insurance and investment contract liabilities 718,201 618,934	611,405
Less: Liabilities ceded under reinsurance – (17,617)	(17,347)
Net life insurance and investment contract liabilities 718,201 601,317	594,058

The movement in life insurance and investment contract liabilities include movements recognised in the income statement (refer to note 4); changes in liabilities ceded under reinsurance; deposits and withdrawals and other adjustments, which do not affect the income statement.

17

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

7. Segmental reporting

The results from operations and related gains on sales of the health, investment, non–participating life businesses and the Australian liabilities have been excluded from the disclosure below as the results, gains on sales and assets of these segments are contained within note 15.

	segments are contained within note 15.
					Holding
			Pacific	New Zealand	companies
		Life	General	General	and
		Insurance	Insurance	Insurance	eliminations	Total
		Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
		$000	$000	$000	$000	$000
	Half year ended 31 March 2013 Revenue Revenue – external Revenue – internal	26,792 592	20,820 –	90,953 3	1,847 (595)	140,412 –
	Net operatingrevenue	27,384	20,820	90,956	1,252	140,412
	Profit/(loss) before income tax Income tax(expense)/credit	7,115 (2,755)	3,848 (4,460)	(10,248) 2,028	(4,726) 1,380	(4,011) (3,807)
	Profit/(loss) for the half year from continuingoperations	4,360	(612)	(8,220)	(3,346)	(7,818)
	Half year ended 31 March 2012 Revenue Revenue – external Revenue – internal	44,656 –	18,180 –	80,391 149	1,808 (149)	145,035 –
	Net operatingrevenue	44,656	18,180	80,540	1,659	145,035
	Profit/(loss) before income tax Income tax(expense)/credit	14,215 (8,052)	5,828 (2,109)	3,352 (1,648)	(7,199) 1,858	16,196 (9,951)
	Profit/(loss) for the half year from continuingoperations	6,163	3,719	1,704	(5,341)	6,245
Segment assets 31 March 2013 (Unaudited)		950,464	77,110	661,793	178,378	1,867,745
	30 September 2012 (Unaudited)(1)	882,916	92,313	672,634	119,890	1,767,753
	31 March 2012 (Unaudited)(1)	860,426	87,376	665,155	125,048	1,738,005

(1) Comparatives are restated to show assets from continuing operations only. Refer note 15 for discontinued operations.

18 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

7. Segmental reporting (continued)

Description of segments

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 identified the operating segments consistent with internal reporting reviewed by the Board of Directors (Chief Operating Decision Maker) for the purpose of making decisions on resource allocation and assessing performance.

Life Insurance includes all participating life insurance business in New Zealand. Pacific General Insurance includes all general insurance services in the Pacific Islands. New Zealand General Insurance includes all general insurance services in New Zealand. Holding Companies and eliminations includes head office expenses, financing costs and intra–group eliminations. Pacific General Insurance meets the quantitative threshold criteria and has been reported separately due to the sale of subsidiaries being classified as discontinued operation or disposal groups. Comparatives have been restated to show the Pacific General Insurance results separately.

8. Interest bearing liabilities

8. Interest bearing liabilities
	31 March	30 September	31 March
	2013	2012	2012
	Unaudited	Audited	Unaudited
	$000	$000	$000
Fixed rate senior unsecured bonds	83,209	83,219	83,209
Unamortised capitalised costs	(839)	(1,229)	(1,602)
	82,370	81,990	81,607

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 $82,370,000 includes $1,450,000 of accrued interest (30 September 2012: $1,460,000 and 31 March 2012: $1,450,000). 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 2013 were $389,500 (30 September 2012: $727,000 and 31 March 2012: $354,000).

The fair value of fixed rate senior unsecured bonds as at 31 March 2013 is $85,698,000 (30 September 2012: $86,104,000 and 31 March 2012: $85,890,000), this has been estimated by reference to the average quoted market price of the underlying debt securities at the end of the period.

9. Net assets per share

9. Net assets per share
	31 March	30 September	31 March
	2013	2012	2012
	Unaudited	Audited	Unaudited
	$000	$000	$000
Net assets per share	1.95	1.85	1.79
Net tangible assetsper share	1.89	1.67	1.60

Net assets per share represents the value of the Group’s total assets divided by the number of ordinary shares on issue at the balance date.

Net tangible assets per share represents the net assets per share adjusted for the effect of intangible assets and deferred tax balances.

19

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

1. Note to the consolidated statement of cashflows

==> picture [368 x 317] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Reconciliation of profit for the half year to net cash flows
from operating activities
Net profit after tax for the half year 44,200 23,565
Add/(less) non-cash items
Depreciation of property, plant and equipment 926 1,141
Amortisation of intangible assets 2,825 821
Change in insurance and life investment contract liabilities (2,581) (1,477)
Unrealised loss/(gain) on financial assets 2,242 (7,050)
Share based payments expense 32 51
Accrued interest on borrowings (9) (10)
Decrease in deferred tax (201) (305)
Intangible asset impairment net of tax 24,840 –
Gross gain on sale of health and investments businesses (96,814) –
(68,740) (6,829)
Add/(less) movements in working capital (excluding the
effects of exchange differences on consolidation)
Decrease in receivables 8,566 49,966
Increase/(decrease) in payables 11,346 (51,245)
(Increase)/decrease in taxation (6,285) 6,644
13,627 5,365
Add other items classified as investing or financing activities
Decrease in capitalised costs 389 354
Net cash (outflows)/inflows from operating activities (10,524) 22,455
----- End of picture text -----

11. Distributions to shareholders

On 29 November 2012 the Directors declared a final dividend for the 2012 financial year of 6 cents per share. The dividend was paid on 1 February 2013. The total amount payable was $16,145,217. There were no imputation credits attached to the dividend and TOWER did not offer its Dividend Reinvestment Plan for this dividend.

Refer to note 14 Subsequent events, for details of the return of capital which was completed in April 2013.

20 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

12. Life insurance liability discount rate

Profit after tax includes movements in the discount rate applied to value individual life risk policy liabilities which is based on current risk-free interest rates. The increase in risk-free interest rates led to a change in the value of individual life risk policy liabilities, generating a net loss of $2,948,000 in the period (2012: gain of $740,000). The movement in discount rate during the 2013 and 2012 periods impacted individual life risk policy liabilities and increased/decreased respectively, the Group profit after tax. All of the discount rate effect below is in respect of the non-participating life business which is included in note 15.

==> picture [367 x 135] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Profit for the half year 44,200 23,565
Includes:
Discount rate effect before tax – loss/(gain) 4,094 (1,028)
Income tax on discount rate effect (1,146) 288
Discount rate effect after tax – loss/(gain) 2,948 (740)
Profit excluding discount rate 47,148 22,825
----- End of picture text -----

13. Impact of Christchurch earthquakes

For the period ended 31 March 2013, the income statement includes gross incurred claims of $2,027,696 less reinsurance recoveries of $1,436,459 in respect of the 23 December 2011 earthquake, resulting in a pre tax net claims expense of $591,237. Included in claims amounts is an after tax increase in net claims provisions relating to the February 2011 event of $14.2 million. Comparative income statement figures for the prior period ended 31 March 2012 include gross incurred claims of $4,335,000 representing incurred claims expenses for 23 December 2011 earthquakes. The amount for the period ended 31 March 2012 was below the reinsurance recoveries excess.

14. Subsequent events

Declaration of dividend

On 27 May 2013 the Directors declared an interim dividend of 5 cents per share. There will be no imputation credits attached to the dividend. The dividend will be paid on 1 July 2013 (Payment Date) to all shareholders on the register as at 5pm on Friday, 14 June 2013 (Record Date). The estimated dividend payable is $10,349,672. TOWER will not be operating the Dividend Reinvestment Plan for the interim dividend. TOWER will withhold resident and non-resident withholding tax where applicable.

Return of Capital

TOWER announced on 8 April 2013 the cancellation of 3 in every 13 ordinary TOWER shares listed on the ASX and NZX exchanges and registered in the name of each TOWER ordinary shareholder. This resulted in the cancellation of 62,097,656 shares, leaving 206,993,438 shares on issue. This cancellation occurred pursuant to the return of capital arrangement approved by TOWER Limited shareholders at its Annual Shareholders’ Meeting held on 21 March 2013. TOWER shares traded on an ‘ex return of capital’ basis on ASX from 28 March 2013 and on NZX from 3 April 2013.

On Friday 12 April 2013, TOWER paid NZ$1.92 for each share cancelled, meaning shareholders received a total payment of NZ$119,227,500 for all shares cancelled. Australian shareholders received approximately AUD$1.55 per cancelled share (based on a NZD/AUD exchange rate of 0.8065 as at the record date).

21

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale

Consolidated results of discontinued operations/disposal groups are as follows:

==> picture [368 x 303] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Profit for the half year from discontinued operations/disposal groups
Profit/(loss) for the half year from discontinued operations:
Health business [(A)] 940 6,801
Investments business [(B)] 4,007 3,582
Life business [(C)] 1,730 6,937
Australian liabilities [(D)] (6,011) –
Profit from discontinued operations 666 17,320
Profit/(loss) from disposal of subsidiaries:
Health business [(A)] 18,845 –
Investments business [(B)] 66,781 –
Life business [(C)] (9,434) –
Impairment of intangible assets [(1)] (24,840) –
Profit from disposal of subsidiaries 51,352 –
Profit from discontinued operations/disposal groups 52,018 17,320
31 March 30 September
2013 2012
$000 $000
Net assets/(liabilities) held for sale:
Health business [(A)] – 76,955
Life business [(C)] 87,338 –
Australian liabilities [(D)] (20,924) –
Total net assets held for sale 66,414 76,955
----- End of picture text -----

(1) Management have reviewed the carrying value of intangible assets in light of recent business disposals. Following this review, an impairment of $34.5 million ($24.8 million net of tax) was recorded against the carrying value of Intangible assets – software. This impairment has been expensed in the 31 March 2013 results reducing the profit from discontinued operations/disposal groups (31 March 2012: nil).

22 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale (continued)

(A) Sale of TOWER Medical Insurance Limited

On 30 November 2012, TOWER Limited sold its health insurance business, TOWER Medical Insurance Limited to Australian health insurer, nib holdings limited for approximately $102 million. The sale followed a strategic review of TOWER Group’s businesses announced earlier in 2012. The sale of TOWER Medical Insurance Limited has resulted in the health insurance business segment being treated as a discontinued operation of the Group.

Operating results for the two months prior to sale of TOWER Medical Insurance Limited have been removed from individual lines in the financial statements and notes, as required by accounting standards, and have been presented as a discontinued operation. A more detailed breakdown of the financial performance, position and cash flows of TOWER Medical Insurance Limited is presented below.

The results of the health business were as follows:

==> picture [367 x 258] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Premium revenue from insurance contracts 24,812 72,634
Investment revenue 1,047 2,019
Net operating revenue 25,859 74,653
Claims expense 18,718 46,282
Net claims expense 18,718 46,282
Decrease in policy liabilities (667) (233)
Management and sales expenses 6,503 19,158
Net claims and operating expenses 24,554 65,207
Profit before taxation 1,305 9,446
Income tax expense (365) (2,645)
Profit after tax from discontinued operations 940 6,801
Cash flows of the health business:
Operating cash inflow 3,068 13,199
Investing cash inflow/(outflow) 41,230 (29,788)
Total cash inflow/(outflow) 44,298 (16,589)
----- End of picture text -----

23

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale (continued)

The financial position of the health business was as follows:

The financial position of the health business was as follows:
	31 March	30 September
	2013	2012
	Unaudited	Audited
	$000	$000
Assets
Cash and cash equivalents	–	13,257
Receivables	–	2,576
Financial assets at fair value through profit or loss	–	88,914
Derivative financial assets	–	3,318
Deferred commission	–	9,530
Deferred acquisition costs	–	22,367
Deferred tax asset	–	14,517
Attributedgoodwill	–	13,067
Total assets	–	167,546
Liabilities
Payables	–	1,834
Current tax liability	–	234
Insurance liabilities	–	26,397
Derivative financial liability	–	34
Deferred tax liability	–	8,931
Premiumpayback liability	–	53,161
Total liabilities	–	90,591
Net assets	–	76,955

Profit on disposal 30 November 2012 Unaudited $000
Cash consideration received 102,346 Net assets at 30 September 2012 76,955 Profit after tax to 30 November 2012 940
Net assets at 30 November 2012 77,895
Grossprofit on disposal 24,451
Less directly attributable costs of sale (6,285) Tax directlyattributable to costs of sale 679
(5,606)
Profit on disposal 18,845

24 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale (continued)

(B) Sale of TOWER Investments Business

On 26 February 2013, TOWER Limited announced the sale of its investments business comprising, TOWER Managed Funds Limited, TOWER Managed Funds Investments Limited, TOWER Employee Benefits Limited, TOWER Asset Management Limited and TOWER Investments Limited, to Fisher Funds Management Limited for approximately $79 million. The sale followed a strategic review of TOWER Group’s businesses announced in 2012. The sale has resulted in the investments business segment being treated as a discontinued operation of the Group. Completion of the sale occurred on 2 April 2013.

At 31 March 2013, the Provisional net asset figure and Profit on disposal calculation remain provisional until confirmed in accordance with transaction documents.

The sale of Investments has been reported in the 31 March 2013 results as an adjusting subsequent event. The operating results of the investments business have been removed from individual lines in the financial statements and notes, as required by accounting standards, and have been presented as a discontinued operation. A more detailed breakdown of the financial performance, position and cash flows of the investments business is presented below.

The results of the investments business were as follows:

==> picture [367 x 227] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Investment revenue 123 16
Fee and other revenue 17,996 18,614
Net operating revenue 18,119 18,630
Management and sales expenses 12,517 13,639
Net claims and operating expenses 12,517 13,639
Profit before taxation 5,602 4,991
Income tax expense (1,595) (1,409)
Profit after tax from discontinued operations 4,007 3,582
Cash flows of disposal group held for sale:
Operating cash inflow 246 3,922
Investing cash (outflow)/inflow (63) 42
Financing cash outflow (236) (6,000)
Total cash outflow (53) (2,036)
----- End of picture text -----

25

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale (continued)

The financial position of the investments business immediately prior to sale was as follows:

15. Discontinued operations/disposal groups held for sale (continued) The financial position of the investments business immediately prior to sale was as follows:
31 March 2013 Unaudited $000
Assets disposed Cash and cash equivalents 604 Receivables 4,819 Property, plant and equipment 65 Deferred acquisition costs 6,091 Deferred tax asset 524
Total assets 12,103 Liabilities disposed Payables 1,252 Current tax liability 264 Provisions 1,873 Deferred tax liability 1,691 Total liabilities 5,080
Provisional net assets 7,023

Profit on disposal 31 March 2013 Unaudited $000
Cash consideration receivable 79,000 Provisional net assets 7,023 Completion adjustments (386)
Net assets on disposal 6,637
Grossprofit on disposal 72,363
Less directly attributable costs of sale (6,409) Tax directlyattributable to costs of sale 827
(5,582)
Profit on disposal 66,781

26 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale (continued)

(C) Sale of non-participating life business

On 10 May 2013, TOWER Limited announced the sale of most of its non-participating life insurance business to Fidelity Life Assurance Company Limited for the aggregate value to TOWER, including cash consideration and release of capital, of $189 million. The sale followed a strategic review of TOWER Group’s businesses announced in 2012. The sale has resulted in the non-participating life business segment being treated as a discontinued operation of the Group. Completion of the sale is expected to occur in July 2013.

The operating results and financial position of the non-participating life business have been removed from individual lines in the financial statements and notes, as required by accounting standards, and have been presented as a discontinued operation and disposal group held for sale. A more detailed breakdown of the financial performance, position and cash flows of the non-participating life business is presented below.

The results of the non-participating life business were as follows:

==> picture [367 x 258] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Premium revenue from insurance contracts 41,967 39,604
Less: Outwards reinsurance expense (11,493) (9,400)
Net operating revenue 30,474 30,204
Claims expense 18,259 17,043
Less: reinsurance recoveries revenue (5,887) (6,291)
Net claims expense 12,372 10,752
Decrease in policy liabilities (1,429) (7,891)
Management and sales expenses 20,223 21,049
Net claims and operating expenses 31,166 23,910
(Loss)/profit before taxation (692) 6,294
Income tax credit 2,422 643
Profit after tax from discontinued operations 1,730 6,937
Cash flows of the health business:
Operating cash inflow (4,762) 17,638
Total cash inflow (4,762) 17,638
----- End of picture text -----

27

Performance

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale (continued)

The financial position of the non-participating life business was as follows:

The financial position of the non-participating life business was as follows:
	31 March 2013 Unaudited $000
Assets
Receivables	13,298
Liabilities ceded under reinsurance	20,504
Total assets	33,802
Liabilities
Payables	2,205
Provisions	447
Insurance liabilities	2,780
Deferred tax liability	39,993
Life insurance contract liabilities(1)	(98,961)
Total liabilities	(53,536)
Net assets	87,338
Less directly attributable costs of sale held in holding company	(11,322)
Tax directlyattributable to costs of sale	1,888
	(9,434)

(1) The Individual risk business presented as discontinued operations includes negative insurance liabilities arising from the net present value of the future cash flows of current inforce life insurance policies.

At 31 March 2013, the sale of the non-participating life business remains subject to satisfaction and timing of certain conditions customary for transactions of this type. Due to the nature of these factors, the impact of the disposal remains provisional and has not been recognised in these financial statements.

(D) Disposal of Australian Liabilities

These financial statements present the Company’s general insurance run-off business in its Australian branch as a discontinued operation and disposal group held for sale. The Australian branch insurance liabilities will be disposed to a third party, subject to a court approved scheme of arrangement. The transaction will include disposing of all policies written or assumed by the branch and all the associated assets and liabilities under those policies. The insurance liabilities have been revalued accordingly.

The sale amount will be settled in cash on the transfer date, which will be determined by an Australian Federal Court subject to approval of the scheme. Subsequent to the disposal of the policy liabilities and related assets, the balance of the Australian branch assets will be repatriated to New Zealand and the operations of the branch will be discontinued.

28 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

15. Discontinued operations/disposal groups held for sale (continued)

	31 March 2013 Unaudited $000
Assets
Reinsurance receivables	1,394
Total assets	1,394
Liabilities
Insurance liabilities prior to classification to held for sale	16,287
Increase insurance liabilities to fair value	6,031
Total liabilities	22,318
Net liabilities	(20,924)
The results associated with the Australian liabilities were as follows:

==> picture [312 x 125] intentionally omitted <==

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

Half year ended
31 March
2013
Unaudited
$000
Increase in value of insurance liability to fair value 6,031
Management and sales expenses (20)
Net claims and operating expenses 6,011
Loss before taxation (6,011)
Income tax expense –
Loss after tax from discontinued operations (6,011)
----- End of picture text -----

In the comparative period the Australian branch net Insurance liabilities decreased by $35,000 with a corresponding impact on the operating results of the branch as claims were paid and claim estimates adjusted during the period. Given the quantum of these amounts no additional analysis has been disclosed.

Cash flows associated with the Australian liabilities:

==> picture [367 x 73] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Operating cash outflow (568) (328)
Total cash outflow (568) (328)
----- End of picture text -----

29

==> picture [55 x 42] intentionally omitted <==

Independent Accountants’ Report

to the shareholders of TOWER Limited

Report on the Interim Financial Statements

We have reviewed the interim condensed financial statements (“financial statements”) of TOWER Limited on pages 8 to 29, which comprise the balance sheet as at 31 March 2013, 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 2013, 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 2013 in accordance with the Review Engagement Standards issued in New Zealand.

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

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 2013 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.

==> picture [117 x 31] intentionally omitted <==

Chartered Accountants Auckland 28 May 2013

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

30

TOWER Capital Limited Interim Financial Statements and Independent Accountant’s Report

For the half year ended 31 March 2013

Table of Contents
Statement of Comprehensive Income	32
Balance Sheet	33
Statement of Changes in Equity	34
Statement of Cash Flows	35
Notes to the Interim Financial Statements
1. Summary of significant accounting policies	36
2. Interest income	36
3. Interest bearing liabilities	36
4. Note to statement of cash flows	37
5. Segmental reporting	37
6. Tangible assets value per bond	38
7. Subsequent events	38
Independent Accountant’s Report	39

31

Performance

TOWER Capital Limited Statement of Comprehensive Income For the half year ended 31 March 2013

==> picture [368 x 236] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
Note $000 $000
Investment revenue
Interest income 2 4,077 4,077
Total investment revenue 4,077 4,077
Operating expenses
Operating expenses 8 10
Total operating expenses 8 10
Financing costs
Interest expense 3,465 3,465
Amortisation of capitalised costs 389 354
Total financing costs 3,854 3,819
Profit before tax 215 248
Income tax expense (60) (69)
Total profit and comprehensive income for the half year
attributed to shareholders 155 179
----- End of picture text -----

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

TOWER Limited and TOWER Capital Limited half year reports 2013

32

TOWER Capital Limited Balance Sheet

As at 31 March 2013

	31 March 30 September	31 March 30 September	31 March
	2013	2012	2012
	Unaudited	Audited	Unaudited
	Note $000	$000	$000
Assets
Cash and cash equivalents	135	–	1,595
Relatedpartyreceivables	85,918	86,563	83,930
Total assets	86,053	86,563	85,525
Liabilities
Bank overdraft	–	558	–
Related party payables	1,543	1,922	1,346
Current tax liabilities	1	–	540
Interest bearing liabilities	3 82,370	81,990	81,607
Deferred tax liabilities	235	344	449
Total liabilities	84,149	84,814	83,942
Net assets	1,904	1,749	1,583
Equity
Retained earnings	1,904	1,749	1,583
Total equity	1,904	1,749	1,583

The interim financial statements were approved for issue by the Board on 27 May 2013.

==> picture [62 x 36] intentionally omitted <==

Michael P Stiassny Chairman

John L Spencer Director

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

33

Performance

TOWER Capital Limited Statement of Changes in Equity For the half year ended 31 March 2013

==> picture [368 x 133] intentionally omitted <==

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

Total Equity
Retained earnings
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Retained earnings
At beginning of the half year 1,749 1,404
Comprehensive income for the half year
Profit for the half year 155 179
At end of the half year 1,904 1,583
----- End of picture text -----

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

TOWER Limited and TOWER Capital Limited half year reports 2013

34

TOWER Capital Limited Statement of Cash Flows For the half year ended 31 March 2013

==> picture [367 x 207] intentionally omitted <==

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
Note $000 $000
Cash flows from operating activities
Interest received 4,077 4,077
Interest paid (3,475) (3,475)
Payments to suppliers and employees (7) (10)
Net cash inflow from operating activities 4 595 592
Cash flows from investing activities
Net advances from related parties 98 50
Net cash inflow from investing activities 98 50
Net increase in cash and cash equivalents 693 642
Cash and cash equivalents at the beginning of the period (558) 953
Cash and cash equivalents at the end of the half year 135 1,595
----- End of picture text -----

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

35

Performance

TOWER Capital Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

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 onlending 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 2012, which have been prepared in accordance with International Financial Reporting Standards and New Zealand Equivalents to International Financial Reporting Standards.

The interim financial statements for the six months ended 31 March 2013 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 for the year ended 30 September 2012.

Comparatives

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

2. Interest Income

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

Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Interest income – TOWER Group companies 4,077 4,077
Total interest income 4,077 4,077
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The Company issued a loan to TOWER Financial Services Group Limited (TFSG) of $81,759,000 on 24 March 2009, bearing a fixed interest rate of 10% pa.

3. Interest bearing liabilities

3. Interest bearing liabilities
	31 March	30 September	31 March
	2013	2012	2012
	Unaudited	Audited	Unaudited
	$000	$000	$000
Fixed rate senior unsecured bonds	83,209	83,219	83,209
Unamortised capitalised costs	(839)	(1,229)	(1,602)
	82,370	81,990	81,607

36 TOWER Limited and TOWER Capital Limited half year reports 2013

TOWER Capital Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

3. Interest bearing liabilities (continued)

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 $82,370,000 includes $1,450,000 of accrued interest (30 September 2012: $1,460,000 and 31 March 2012: $1,450,000). 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 2013 were $389,500 (30 September 2012: $727,000 and 31 March 2012: $354,000).

The fair value of fixed rate senior unsecured bonds as at 31 March 2013 is $85,698,000 (30 September 2012: $86,104,000 and 31 March 2012: $85,890,000), this has been estimated by reference to the average quoted market price of the underlying debt securities at the end of the period.

4. Note to statement of cash flows

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Half year ended
31 March 31 March
2013 2012
Unaudited Unaudited
$000 $000
Reconciliation of profit for the period to net cash flows from
operating activities
Net profit after tax for the half year 155 179
Less non cash items
Decrease in deferred tax liabilities (109) (99)
Accrued interest on borrowings (9) (10)
(118) (109)
Add/(less) movements in working capital
Increase in taxation 169 168
169 168
Add other items classified as financing activities
Decrease in capitalised costs 389 354
Net cash inflow from operating activities 595 592
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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 in one geographical segment, New Zealand. Consequently no segmental information is required.

37

Performance

TOWER Capital Limited Notes to the Interim Financial Statements For the half year ended 31 March 2013

6. Tangible asset value per bond

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

Half year ended
----- End of picture text -----

	31 March	31 March
	2013	2012
	Unaudited	Unaudited
	$000	$000
Tangible assetsper bond	1.05	1.05

Tangible assets per bond represents the value of the Company’s total assets divided by the number of fixed rate senior unsecured bonds on issue as at 31 March.

7. Subsequent events

There have been no material events subsequent to 31 March 2013.

38 TOWER Limited and TOWER Capital Limited half year reports 2013

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Independent Accountants’ Report

to the shareholders of TOWER Capital Limited

Report on the Interim Financial Statements

We have reviewed the interim condensed financial statements (“financial statements”) of TOWER Capital Limited (the “Company”) on pages 32 to 38, which comprise the balance sheet as at 31 March 2013, the statement of comprehensive income, the 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 2013, 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 2013 in accordance with the Review Engagement Standards issued in New Zealand.

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

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 2013 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. 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, for our review procedures, for this report or for the opinions we have formed.

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Chartered Accountants Auckland 28 May 2013

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

39

TOWER Directory

Board of Directors

Michael Stiassny (Chairman) Rob Flannagan (Group Managing Director) Mike Allen David Hancock Mike Jefferies Steve Smith John Spencer CNZM Graham Stuart

Management team

Michael Boggs (Chief Operating Officer) Debbie Eyre (General Manager Customer Services) Peter Finch (General Manager Business Transformation) Chris Jackson (General Manager Sales and Marketing) Bronwyn Walsh (Company Secretary & Compliance Manager)

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

Auditor

PricewaterhouseCoopers

Banker

Westpac New Zealand Limited

Solicitor

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, Auckland 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 3329 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.investorcentre.com/nz

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

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.

40 TOWER Limited and TOWER Capital Limited half year reports 2013

41

TOWER Limited and 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 4083 Email: enquiry@computershare.co.nz Website: www.investorcentre.com/nz