Hills posts another huge loss after slashing more goodwill

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Hills posts another huge loss after slashing more goodwill

Hills Limited is taking another huge impairment charge after a review brought on by its falling share price – which is down 67 percent in a year – but has also reported some wins in the first half of its financial year.

The company, which made a $94 million write-down of goodwill and assets in its full-year results last year, has admitted it needs to make a further $66 million non-cash impairment of the accounting carrying values of goodwill, intangible assets, deferred tax assets and freehold property.

This latest write-down drove a half-year loss after tax of $69 million, down from a net profit after tax of $9.2 million in the previous half-year period. In its 2015 full-year results, Hills posted a statutory net loss of $86 million.

This latest impairment comprises a $39.2 million goodwill write-down, $20.3 million derecognition of deferred tax assets and $6.5 million of "other asset impairments".

Hills chief executive Grant Logan said: “Importantly, this non-cash accounting charge has no impact on the economics of the Hills Group business nor does it have any impact on future operating cash flows.

“While the trading EBITDA results of the Hills business show positive signs of improvement, it is disappointing and distracting to have to recognise some further significant non-operating accounting charges in FY16."

Looking on the brightside, Logan said that Hills' $182.1 million of losses could be used to minimise tax to "close to zero" in coming years.

Hills' half-year revenue fell 27.7 percent, or $62.9 million, to $164.1 million for the six months to 31 December 2015. Earnings plummeted 73.5 percent, or $15 million, to $5.4 million. The results were impacted by discontinued businesses and the departure of its largest vendor, Crestron.

The EBITDA result of $5.4 million was "better than expected" at the time of the 2015 annual general meeting.

Hills pointed at new distribution deals as a positive sign for the company. One of the biggest letdowns in Hills' full-year report last August was the news it had lost Crestron when the home automation vendor switched to a direct model. In the latest period, Hills chalked up deals with Dell, Qnap, security and IP surveillance vendors BQT and Vivotek, and video analytics provider Ipsotek.

Another sweetener has been the growth of Hills' services revenues, now at 18 percent of turnover with an ambition to grow this as high as 25 percent. Services include large teams of installers working on "high-volume contracts" for wireless and satellite rollouts for the likes of Foxtel and NBN.

Hills' cashflow has also dropped significantly year-on-year, down from $4 million in the first half of 2015 to a projected $400,000 at 30 June 2016. The company was optimistic that cash had remained in the black, given that cash flow was affected by $7.7 million of payouts for "restructuring" in the first half and $3.2 million in previous period.

The company has restructured into four segments – with its AV, security & IT, and communications divisions falling under Hills Building Technology, adding to the Hills Health Solutions arm.

"The new structure will mean that our customers are immediately dealing with the right sales team to deliver the best solution for them," said Logan.

Hills is now in talks with its bankers to refinance its credit facilities to better suit its structure as a value-added distributor. Its $110 million of unsecured finance will be replaced by a $55 million secured facility. The company expects the new facilities to be in place by April.

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