News: Hills targeting transformation with technology

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Transcription of Finance News Network Interview with Hills Limited (ASX:HIL) Managing Director and CEO, Ted Pretty

Lelde Smits: The iconic Hills Limited (ASX:HIL) is in the process of transforming into a technology company. The once diversified investment company is aiming to generate 75 per cent of revenue through technologies and communications while pursuing sustained earnings growth innovation, production development and acquisitions. I’m Lelde Smits and joining meat ASX Investor Series in Sydney is the Company’s Managing Director and CEO, Ted Pretty. Ted welcome.

Ted Pretty: Thank you very much.

Lelde Smits: When we last spoke at the end of the 2014 financial year, the Company’s transformation was in full swing. What has occurred since?

Ted Pretty: We’ve completed largely all the structural work for the transformation and now we’re concentrating on our core technology businesses. For the next six probably nine months, we’ll be in that period of consolidation improving supply chain, improving our processes, looking at the system supporting the business. But at the same time, we’ve got an eye on acquisitions and as I mentioned to you I think when we spoke last time, acquisitions will be the core focus of the business over the next 12 months.

Lelde Smits: Hills recently also downgraded its fiscal 2015 profit expectations. Could you outline why and also what the Company is doing to tackle those issues?

Ted Pretty: When we announced the FY14 year, we expected that the FY15 guidance would be somewhere between $22 million and $24 million of net profit, after tax. What we’ve said to the market is the first four months of the year, trading has been softer. We’ve also said the shift in the Aussie dollar which has been quite significant, will impact earnings. And that is after we’ve taken the benefit of things such as hedging and price increases, that you can make in the marketplace. So we’re seeing a bit of softer move in the Australian economy in the first six months. So we’re being a little bit cautious on the guidance and said we’ll be at their lower end of that range.

Lelde Smits: Hills’ recent AGM highlighted pleasing trading conditions from your health solutions business. Can you outline what the Company does and also what factors are supporting its growth?

Ted Pretty: The bottom line with health is that the whole industry is growing around eight per cent compound, annual growth rate and revenue. That is why we’ve moved into health technology, we see it as a sector which has a lot of potential. We’re involved in nurse call and patient entertainment, patient engagement technologies. We see that the continuing growth in healthcare will support the growth in those technologies. So we’ve been quite pleased with its performance in the first four months. It was the bright spot in otherwise difficult trading conditions.

Lelde Smits: The technologies sector is a very hot sector at the moment with many new entrants. How does Hills’ strategy target quality assets and also what do you believe sets it apart from the rest?

Ted Pretty: We need to develop some unique and sustainable business value propositions. To a large extent our business has been focused on the distribution of third party product, into the Australian market. So that’s been important to us in terms of our earnings to date. But we see a lot of opportunity, particularly in the health sector where we will produce, design, manufacture that product ourselves and provide a bit more sustainability to our margins. Because if you’re importing a lot of product and you’re subject to variations in the Aussie dollar, that creates a vulnerability in your business. If you’re able to manufacture your own product and have some self-determination over how your margins work, then it’s better for the business.

Lelde Smits: Finally Ted, as Hills’ transformation continues, what milestones will you be targeting?

Ted Pretty: I think the acquisition milestone. We’ve indicated we’ve got a very clean and underleveraged balance sheet. We’re not in a hurry to do the acquisition. But we know and I think the market expects us to make an acquisition, that’s consistent with the strategy of going deeper into technology. And going deeper into, particularly health and security in terms of technology. The market is probably holding a little bit on their view of the Hills stock, which is fine. But I think it’s important for our shareholders that we select the right acquisitions and don’t jump too quickly.

Lelde Smits: Ted Pretty, thank you for the update from Hills.

Ted Pretty: Thank you very much.


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