Hills plans $5m cost cuts as it hunts profits

Hills Group is on the hunt for $5 million of savings in its distribution business, in the hope that doing so will return it to profitability.

The distributor copped a hit to its revenue in the first half of FY19 due to lagging SMB sales and changes to its AV product portfolio. News of that hiccup came as Hills celebrated its first net profit in years during FY18, followed up by another $242,000 profit in the first half of FY19.

Business seems to have become more complex since, as Hills slipped in a notice to the ASX on the evening of May 21st to announce it had kicked off an operational review of its distribution business in February with the goal of returning the segment to a profit without impacting its other core business segments, Hills Health and Communications.

The company tapped independent consultants to help with the review, focusing on identifying operational efficiencies, potential inventory management improvements and any other cost savings.

So far, the review has identified $3 — 3.5 million in annualised productivity improvements and operational cost savings, and a possible $5 million in savings over the next two financial years.

It will, however, incur a one-off cost estimated between $300,000 and $500,000 in FY19 to realise those savings. Hills didn’t specify how it would find the hoped-for savings.

"These initial changes, with more to come, will put the distribution business on the path to profitability and ensure it is well positioned to meet the challenges within the markets in which it operates," Hills CEO David Lenz said.

"Given our track record of returning the Hills Group to profitability in FY2018, we believe that the performance of our distribution business can be substantially improved."

Hills also enlisted corporate advisory firm AquAsia to undertake a strategic review of the whole business to maximise the performance of divisions and boost Hills' share price to reflect its financial performance.

Hills will give more details on its operational review when it announces its full year results in August.

Hills has been contacted for comment.