Hills acquisitions to enhance transformation


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

Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from Hills Limited (ASX:HIL) is its Managing Director and CEO, Ted Pretty. Ted welcome to FNN.

Ted Pretty: Thank you.

Lelde Smits: Hills has just rebounded to a full year net profit from a loss the year before. How did you achieve the turnaround result?

Ted Pretty: There’s two parts to the turnaround result. There’s the statutory result, which reflects the impairments we took in FY13 that we don’t have in FY14. But more pleasingly is the underlying performance of the business, improved significantly year on year.

Lelde Smits: Underlying net profit and EBITDA grew more than 40 per cent year on year. What were the drivers behind the growth?

Ted Pretty: The drivers of the growth in EBITDA and underlying performance were largely around the core businesses that we’ve retained. So that means the core building technologies, security, AV and some of the healthcare businesses we acquired during the year.

Lelde Smits: The Company’s strategy is targeting transformation. Where has your journey taken you to date and where are you aiming to go?

Ted Pretty: Transformation is a necessary step in terms of repositioning the business, so it can grow for another 70 years. We’re 70 years old next year; we need to grow another 70. So that means we need to focus on markets which have higher growth potential, and areas such as security and healthcare are clearly those. So, we want to transform the business and move to those areas.

Lelde Smits: Can you outline the biggest changes that have and are taking place as part of your restructure away from the ‘old’ Hills ‘holding’ company?

Ted Pretty: About 22 months ago, we had three operating divisions in 28 separate businesses. So it was a bit like Noah’s Ark, except we only had one of each animal, so we decided that we needed to focus far more intently around areas of strong growth. So we disposed of what we call our non-core steel businesses and our other industrial assets, and focused on technology based businesses with strong underlying growth.

Lelde Smits: As part of your transition you’ve entered new markets and completed bolt-on acquisitions. What are your plans to build on both?

Ted Pretty: We like bolt-on acquisitions because they add competencies, but they take as much time to do a small one, as it does to do a large acquisition. So what we’ve focused on in FY15 is one or two transformational acquisitions that significantly improve the ongoing growth profile of the Company.

Lelde Smits: While on acquisitions, where are you looking and what have you earmarked?

Ted Pretty: I think one of the challenges is you’ve got to review all of the listed and privately held companies in the country, and see which of those are a good fit with your business. One of the challenges is we compete against private equity for those assets, so it takes a bit of time. So suffice it to say that we’ve looked at over 120 different businesses to date. We are moving in, or honing in on a couple, but it’s probably premature to talk about those until we’re a bit further down the track.

Lelde Smits: What is the Company’s acquisition capacity and how will your operating model support any proposed transactions?

Ted Pretty: With the transformation we’ve conducted, we’re in a situation where the balance sheet is very strong. And with a strong balance sheet, you’ve got a number of options. And those options include smaller or mid-size acquisitions, or perhaps a single large acquisition that’s transformational for the business. It probably doesn’t matter which we do, because we’ve got the strong balance sheet to be able to do it. And clearly, we’re receiving a lot of support from investors and banks in terms of what we might like to do, and how they might support us in doing it.

Lelde Smits: Which growth platforms do you believe will enhance the Company’s future growth prospects, and what are your immediate priorities for pursuing them?

Ted Pretty: The growth platforms we see are in security and access control and audio. They’re in healthcare and health technologies, and they’re in technology services. And, the reason we’re focusing on those areas, is they have compounding annual growth rates of six to eight per cent. So they’re hot, and we would like to be in those areas. Going forward, we need to sift through the potential acquisition targets in each of those, make sure it’s a good quality asset, make sure it’s going to add value, or bring new competencies to the business and set it up for future growth.

Lelde Smits: Finally Ted, what is Hills’ guidance for the current 2015 financial year and what kind of announcements can shareholders look forward to over the coming year?

Ted Pretty: Well the guidance for the FY15 year is for an underlying net profit after tax, of somewhere between $22 - $24 million, which reflects the continuing businesses that we’ve taken from FY14 into FY15. Of course, this excludes the benefit of any acquisitions that we may make during the year. What should shareholders expect? The same intensity of focus around the growth markets that I’ve just outlined. And they should also expect us to not allow the money to burn a hole in our pocket. We’ve got to find a good asset and we’ve got to take our time in doing so.

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

Ted Pretty: Thank you very much.


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