Hills Limited has opened up about the past three rollercoaster years in which it bid farewell to its manufacturing legacy and battled its way into the high-tech industry.
The company, which has a place in Australian folklore as the inventor of the much-loved Hills Hoist clothes line, has utterly redefined itself, facing challenges along the way.
In a letter to shareholders this week, signed by chairman Jennifer Hill-Ling and newly appointed chief executive Grant Logan, the company admitted that it has been a tough road; Hills recently reported a $86 million on-paper loss after copping a $94 million impairment of goodwill and assets.
It told shareholders "we recognise that we can and must do better and we are accelerating efforts to stabilise, consolidate and grow our businesses".
The company's 2015 financial year saw the exit of chief executive Ted Pretty, while it has flagged more pain in the near future after the loss of its biggest vendor, automation systems maker Crestron. It hopes newly signed fire safety and security vendor Tyco will help offset the loss.
The financial impairment marked yet another re-adjustment following three years of rightsizing, having reduced its headcount from 2,642 to 862 and rationalised its footprint from 124 sites down to just 39 since 2012.
With staff numbers under control, annual rental spend a third of what it once was, and the company's book value now better reflecting its share price after that non-cash accounting charge, Hills is now fixated on fattening its margins.
Margins have been squeezed due to a range of factors, including reduced government spending, project deferrals in construction, health and mining and the falling Australian dollar. "Margin improvement is a key focus for management in FY2016," the letter said.
Through its cutbacks, Hills has reduced corporate costs by around $10 million and "will continue to focus on cost reduction into FY2016".
Appetite for M&A
Hills remains committed to growing and diversifying through acquisitions, as long as it can find deals at the right price.
The company has "assessed a number of potential acquisitions locally and overseas – the buoyant market in the health and technology sectors meant prices for larger acquisitions moved higher during the year and the company was unable to find suitable acquisitions within its financial capacity".
"Your board is, and remains, determined to maintain financial discipline around mergers and acquisitions," according to the letter to shareholders.
The past three years have seen Hills radically make over its business via acquisitions in the technology sphere. It has transformed "from a conglomerate dependent upon low-margin, capital-intensive steel fabrication to a higher-margin, value-added distributor of security, AV and health services".
Hills has made eight acquisitions in three years: physical and IT security providers Open Platform Systems and Intek; hospital technology suppliers Hostel, HTR, Merlon and Questek; IT distributor Lan1; and audio distie APG.
These acquisition targets were "solid businesses with good fundamentals in growth sectors with higher margins", Hill-Ling and Logan wrote.
"However, the integration did not go as well as it could have and results were impacted," the company has admitted.
Hills remain steadfast that the transition was the right move.
"We have had many shareholders ask whether the strategic direction we took three years ago was the right one. To this we answer; absolutely," read the letter to investors.
Despite the move into more buoyant, high-margin sectors, Hills share price has been hammered. Through the mid to late 2000s, Hills traded at around $6 per share. By late 2011, it was hovering around $1, and this year alone has dropped from $1.18 to now sit at 38c.
In May this year, Hills parted ways with chief executive Ted Pretty, the former group managing director of Telstra who had been the architect of Hills' high-tech transformation, an evolution that has so far failed to bear fruit for investors.
Chairman Jennifer Hill-Ling welcomed new boss Grant Logan. "During the second half of FY2015, the company undertook a realignment of the management team (including making some management changes) in order to focus on stabilising, consolidating and growing our business in Australia and New Zealand."
Hills' acquisitions
- 14 August 2012: Lan1 (distributor of security and networking tech)
- 4 September 2013: HTR ("Hospital Television Rentals" - supplier and installer of specialist patient entertainment systems)
- 1 October 2013: Merlon (producer of IP nurse call solutions)
- 2 April 2014: Open Platform Systems (distributor of security and networking tech)
- 3 April 2014: Questek (maker of nurse call systems, general healthcare monitoring systems)
- 20 June 2014: APG ("Audio Products Group" - supplier of professional audio products)
- 4 June 2014: Intek (supplier of physical security devices)
- 6 Feb 2015: Hostel ( provider of patient entertainment and communication solutions to hospitals)
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