Hills chief: transformation cost us customers, staff, revenue

Hills Limited chief executive Grant Logan has admitted his company has lost customers, revenue and goodwill as a result of its recent transformation program.

In an address to shareholders at the ASX-listed distributor’s annual general meeting, Logan said that the building technologies division - which contributes 80 percent of revenues - suffered an earnings dip of $9 million from the previous year.

While “aggressive competition” and an unfavourable exchange rate contributed, the chief executive conceded external factors were not solely to blame.

“Not all of the causes of the poor FY2015 earnings result were external, macro factors. There is no doubt that a number of internal issues contributed their fair share,” he said at the meeting held last Thursday.

“Operating costs increased during the year at the same time as the transformation program caused disruption to customers and a loss of revenue and goodwill. The management team is certainly focused on settling down the supply chain and winning back customers who had been negatively impacted.”

Hills Limited has been on a multi-year journey to change from an industrial manufacturer to a technology business. Steel fabrication and other non-technology businesses had been sold off in last two years, in favour of building and health technology distribution.

On a positive note, Logan referred to the numerous vendor awards that Hills had won in the past year: Ruckus, Allied Telesis, Axis, Genetec and Williams Sound. The company was also appointed as exclusive Australian distie for Ipsotek and Vivotek.

Hills Limited’s biggest vendor, building software and hardware manufacturer Crestron, ended its relationship in August to start selling direct. Logan also said “some other vendors” had also gone direct, without naming them.

Hills’ minority business of health solutions also copped a dip in earnings, going to $4.1 million EBITDA from $5.3 million.

“This profit result was very disappointing,” Logan said, blaming a longer-than-expected integration of acquisitions and an exodus of key personnel.

“We lost a number of our sales team and momentum in terms of managing the forward-looking sales pipeline. We also lost a number of our project management team, which led to cost overruns on our projects.”

A letter to shareholders in September had revealed that Hills had reduced its headcount from 2,642 to 862 in three years.

The chief also said that acquisition integration and pursuits had led to “management attention” to be “diverted from the day-to-day business”, and as such the buyout strategy has been abandoned.

“We do not expect improvements in the health segment to be realised until financial year 2017.”

Back to basics

Looking forward, Logan said Hills would “get back to basics”, mending relationships with vendors, customer and its employees.

“Our employees have gone through a lot of turmoil as a result of the changes and restructuring of the last few years, but we now have a workforce that firmly understands that we are in the business of providing value-adding distribution and exceptional advice.”

Logan also said that capital spending would be tightened and that sales staff have been directed to focus on margins, not just revenues.

“We have now changed the way we incentivise our sales people so that they are now remunerated by the amount of margin they generate, not just the volume of sales.”

Unfortunately for the Adelaide-origin distributor, the first quarter of financial year 2016 saw “a small loss” and the “first two months of the second quarter have been softer than anticipated” for the building technologies division.

“As a result we anticipate a small loss for the first half with improvements coming through in the second half of financial year 2016.”

Hills’ shares were at 37.5 cents on Monday morning, significantly down from $1.19 one year ago.