Hills expects return to profit in 2018 after "tough decisions"

Hills expects to return to trading profit in the second half of the 2018 financial year, the distributor announced during its 2017 annual general meeting, addressing moves to return to profitability after a disappointing run of losses in the years prior.

“We are making progress and Hills is heading in the right direction,” Hills chairwoman Jennifer Hill-Ling told shareholders during the meeting last week.

“Although we are not anticipating a return to profit in the current December half, we are expecting a trading profit in the second half of FY18 as our strategic initiatives and the benefits of cost reductions are realised.”

The distributor accrued a net loss of $7.9 million for the financial year ending 30 June 2017, which, while a hit to the company, was a vast improvement on the prior year's loss of $68 million. Revenue was down $31 million to $298 million for the year.

Hills has now spent $53 million on restructuring and transformation over the past five years, supported by the sale of many of its old assets.

“Over the last five years we have sold our legacy steel, manufacturing and non-core businesses and assets… for $233 million and we have used the proceeds to acquire new technology businesses in the health, security and AV sectors for $103 million (including transactional costs),” Hill-Ling said.

“The balance of the sale proceeds was applied to reduce debt by $85 million and fund share buybacks of $25 million and assist in funding a further $53 million in restructure and right sizing costs associated with the transformation of Hills.”

Hills chief executive David Lenz said while the past financial year had been a challenging one, the company had made changes to strengthen its position.

“We’ve made the hard decisions that were necessary to ensure the future success of the company,” he said. “We have focused our attention on continuing to deliver improvements in our overall business and implement strategies we believe will deliver the best outcomes for our customers, shareholders vendors and staff,” he said.

Some of those hard decisions included the termination of a merger and redundancies.

In January Hills' proposed deal with health technology provider Lincor Solutions, which would have seen Hills Health Solutions demerge from Hills and form a new company with Lincor, was terminated. Lenz at the time said the two companies couldn’t come to an agreement on pre-IPO funding.

Hills also continued to pay restructuring costs related to redundancies. Hills’ workforce sat at 670 full-time staff in May 2016, down 200 from June 2015.

The company reported that redundancies, lease obligations and Lincor costs represented $5.4 million in 2017. 

The company reduced its debt by $1.6 million to $20 million.

The company’s recovery plan is based on the reduction of operating expenses, outsourcing its administrative function, strengthening its customer relationships, investing in new health initiatives and more.

Hills has established three main business growth areas in healthcare, security surveillance and communications, and audiovisual.

It’s expected the company will also benefit from several key customer wins, including the distribution of its Nurse Call technology and patient engagement services to hospitals in Victoria and New South Wales, as well as security wins including at Perth Stadium, NSW Parliament House, Mirvac retail properties and Sydney Trains.