Extra $25 million in Budget for irrigation welcomed
Tower shares jump on back of higher dividend and fewer claims
IrrigationNZ said the $25 million in extra funding for irrigation projects announced in the Budget would help boost development of water storage and infrastructure, particularly in drought-prone east coast regions.
Primary Industries Minister Nathan Guy said last week irrigation projects would receive a funding kick-start for five years from 2016/17 through the Irrigation Acceleration Fund (IAF).
Nicky Hyslop, IrrigationNZ chairman and a director of South Canterbury’s Opuha Water Partnership, said the money would boost the development stages of water storage and irrigation distribution infrastructure.
“The need for more water storage Tower shares rose after the general insurer hiked its interim dividend and confirmed an on-market share buyback after lifting first-half underlying earnings 36 per cent on rising premiums and fewer claims.
The stock hit $2.22 before closing yesterday up 9c at $2.20 after the Auckland-based insurer reported underlying profit of $17.9 million in the six months ended March 31 from $13.1 million a year earlier.
Gross written premiums rose 4.9 per cent to $145.9 million, while favourable weather across New Zealand and the Pacific helped cut the insurer’s claims ratio to 44.5 per cent from 50.4 per cent a year earlier.
Chairman Michael Stiassny confirmed plans to implement an onmarket share buyback of up to $34 million, or 10 per cent of Tower’s stock, which he said will commence projects is obvious given that nearly every part of the country has suffered through drought at some stage over the past three years,” Hyslop said.
About 100,000ha of new irrigated areas are expected from IAF-funded projects to date, with about 36,000ha of that commissioned or currently being built.
The IAF helps support the development of irrigation infrastructure proposals to the stage where they are investment ready.
The Government also supports the projects through Crown Irrigation Investments, which acts as a bridging investor for regional water infrastructure development.
A total of $120 million has been allocated to CIIL over the past two years with the potential to provide a further 125,000ha of new irrigation. shortly. The board declared an unimputed interim dividend of 8.5c per share, payable on June 30 with a June 12 record date. “The result was at the higher end of earlier guidance, and the 8.5c per share dividend was well up on the previous payment,” said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. “The underlying earnings show a very nice increase on the back of premium increases.”
Auckland-based Tower reported a net loss of $4.9 million, compared to a profit of $13.1 million a year earlier.
The insurer increased provisioning for the Canterbury quakes by $22.6 million, slightly above the top of the forecast range flagged earlier this month, as pro- jected rebuild costs rose due to labour and material shortages and higher building costs. That pushed the insurer’s projected claim expense above its $325 million reinsurance limit for the major 2011 event.
The company signalled it would face higher claims expenses from the Canterbury rebuild earlier this month. That increased cost was also captured in the Reserve Bank’s recent financial stability report, which raised its estimate for industry claims to between $33 billion and $38 billion from a previous range of $32 billion to $37 billion.
The insurer had settled 94 per cent of all claims relating to the Canterbury rebuild as at April 30, and was carrying $51 million in capital above its minimum solvency requirements under the central bank’s prudential regime.
“We are very pleased with the improvement in our underlying general insurance profit over the past six months,” said chief executive David Hancock. “We have been busy implementing our growth strategy, transforming our customer interactions to drive revenue and efficiency, building our digital capability to take us into new distribution channels, and increasing our very strong position in the Pacific Rim.”
Tower is looking to latch on to its 140-year history of providing insurance across the Pacific to access largely greenfield opportunities in Papua New Guinea, Fiji and the Solomon Islands, and it plans to launch in Vanuatu later this year.
The company entered into an alliance partnership with Trade Me, which Hancock said would target distribution, without being more specific.
Tower didn’t provide full-year earnings guidance, though Hancock said second-half performance was typically similar to the first six months of the financial year.
The company said the insurance industry would see growth in reinsurance costs following the Canterbury quakes which would put upward pressure on premiums.