Hills distribution earnings to slump by $2.9m

Hills has revealed a projected slump in revenue from its distribution business and signaled it will exit its communications business.

In a market update (pdf) released to the ASX today, the distributor projected distribution earnings of $1.6m for FY 2019, down from 2018's $4.5m. The update also revealed the company will exit its antenna and STEP satellite services business and will not renew its contract to supply satellite dishes to Foxtel.

The decision was made following a strategic review, with the company looking to focus on its more profitable health business and streamline its audio-visual, security and IT systems and distribution business.

“These decisions reflect the declining profitability of the communications business and the continued fall in Foxtel volumes,” the update read.

As part of this decision, Hills will stop manufacturing operations at its O’Sullivan beach facility in Adelaide by the end of the 2019 calendar year. The company added that it received a conditional offer for its antenna business, ensuring the continued manufacture of the Black Arrow range in Australia.

“The strategic review has delivered the roadmap to focus on the exciting potential of Hills Health business, with a streamlined distribution business expected to return to profitability as early as the first half of FY2020,” Hills managing director David Lenz said in the update.

Looking ahead to the release of its FY19 results, Hills revealed it would incur one-off expenses, including $6.3 million related to inventory and property and $1.4 million in redundancy costs.

The distributor expects to post an $8.8 million loss after tax, or $500,000 in underlying profit after tax. Health its best-performing business, expecting an increase from $7.4 million to $11.1 million in EBITDA for the period.

“The results of our strategic and operational reviews will restore sustainable profitability and ensure the market correctly values the Company for the benefit of all shareholders,” Hills chairman Jennifer Hill-Ling said in the update.

“While we are disappointed by the write-downs to effect the required turnaround in performance and refocusing of the business, the results are starting to show, particularly in Health where profitable growth is very pleasing. We will provide a further update to shareholders on the Strategic Review as appropriate or at the Annual General Meeting.”