LA Private

Trans-Tasman Tidings: TWR, FSF

Some news wafted across the Tasman on Thursday from a couple of our Kiwi siblings, insurance group Tower (ASX:TWR) and dairy major Fonterra (ASX:FSF).

NZ insurer Tower (ASX:TWR) has dropped its interim dividend and put the final in doubt after it was driven deep into the red by the two major rain and flooding disasters to hit the country at the start of this year and then two cyclones which hit Vanuatu.

Tower revealed on Thursday that it incurred a $NZ5.1 million loss for the first half of 2022-23, compared with the $NZ3 million profit for the same period a year ago.

In late January, torrential rainfall led to devastating flooding in Auckland. In February, Cyclone Gabrielle struck, causing widespread damage across the North Island. Then cyclones Judy and Kevin struck Vanuatu causing widespread damage within a couple of days.

Tower said that around 30% of claims for the Auckland and Upper North Island weather event and Cyclone Gabrielle, and 5% of claims for Cyclones Judy and Kevin in Vanuatu have been completed and Tit was working to settle the remainder.

“These events are predominantly covered by reinsurance. The cost to Tower for each of the New Zealand catastrophe events is limited to an $NZ11.9m excess, while the estimated cost of the Vanuatu cyclones is $NZ10m net of reinsurance recoveries.

As a result of the loss, Tower dropped its interim dividend for the six months to March 31 (it paid 2.5 NZ cents a year ago) and the company said on Thursday “A decision on a full year dividend will be made when Tower’s full year results are finalised” later in the year (around mid to late November).

He said the insurer was dealing with a third major weather event in Auckland last month

CEO Blair Turnbull said on Thursday Tower was confident of turning in a profit for the full year.

“We expect to deliver a full year profit along with sustainable long-term growth in revenue and earnings,” he said.

Tower said its full year underlying net after tax profit guidance remains between $NZ8 million and $NZ13 million, assuming full utilisation of the $NZ 50 million large events allowance.

Full year “Gross Written Premium (GWP) guidance is between 15% and 20% organic growth and reflecting higher motor claims costs. a strong rating response to address inflation, rising reinsurance premiums,” the insurer said. GWP rose 15% in the half year to $NZ245 million.

Tower reported customer growth of 5%, and now has 320,000 customers.

Tower was the first major insurer to introduce individual risk-based pricing for homes based on their risk of being damaged in earthquakes and flooding.

Now it says is moving towards expanding “its risk-based pricing model to include landslide and coastal hazards. Advanced selection for landslide risks is already in place across New Zealand.”

That sounds like premium increases for people and businesses deemed to be living in areas of the country exposed to landslides and slips and coastal erosion and heavy seas.

Tower shares ended the day steady on the ASX at $A0.565.


Meanwhile, NZ dairy giant Fonterra (ASX:FSF) has cut its milk price forecast for the forthcoming new season and as well as a massive third quarter profit.

The co-operative reported a higher third-quarter profit (to the end of April) which enabled it to lift its full-year forecast for normalised earnings to 65 to 80 NZ cents per share from 55 to 75 NZcps and CEO Miles Hurrell said Fonterra remains on track for a strong full-year dividend.

Having sold its Chile business Soprole and its last remaining China farm, he said Fonterra is also bringing forward the payment date of its proposed $NZ800 million capital return from October to August.

The news saw securities in Fonterra’s ASX-listed fund jump more than 3% to $A3.35 on Thursday, making them one of the few gainers on a hard day for the wider market.

Fonterra reported a profit after tax of $NZ1.326 billion for the third quarter, up $NZ854 million on the same period last year and includes the gain on sale from Soprole of $NZ260 million.

Fonterra said that excluding the net gain from divestments, normalised profit after tax improved on last year, up $NZ606 million to $NZ1.078 billion, equivalent to 65 NZ cents per share,” the company said.

“This is due to strong performance in our Ingredients channel, with continued higher margins in our cheese and protein portfolio, particularly casein and caseinate.

“These favourable price relatives have continued longer than expected, and we’re also seeing improved performance coming through in our Foodservice and Consumer channels, in particular in Global Markets.

“As a result, we have lifted our FY23 full year forecast normalised earnings to 65-80 NZ cents per share from 55-75 NZ cents per share and remain on track for a strong full year dividend.

“Total Group normalised operating expenses are up in part due to the impact of impairments reported in our FY23 Interim Results in March, as well as ongoing inflationary pressures.”

Fonterra announced a lower opening milk price for NZ dairy farmers next season and it also cut its forecast for this season.

The co-operative expects to pay farmers between $NZ7.25 and $NZ8.75 per kilogram of milk solids for the season starting next month. The $NZ8 per kgMS mid-point, which farmers are paid off, is less than the $NZ8.20 per kgMS it expects to pay this season, which it trimmed from its earlier forecast of $NZ8.30 per kgMS.

CEO Hurrell said the forecast farmgate milk price for this season has been impacted by reduced demand, particularly from China.