Hills is undertaking a further review of its loss-making New Zealand security distribution operations, commencing a workplace change process with employees to consider options for the business.
“Hills is committed to ensuring its employees, vendors and customers remain informed and are supported throughout this process,” the Australian listed company told shareholders on 19 October.
“Hills expects to update the market in early November 2021 regarding the outcome of the review and any financial impacts on the company.”
The warning comes after the company in August revealed a substantial fall in annual revenue across the group, along with deepening losses, posting a net after-tax loss of A$10.2 million for the year ending 30 June.
In its FY21 annual financial report, the company said the net loss reflected the significant business disruption caused by a number of factors including the rolling lockdowns in all major states in Australia, related restrictions on access to hospitals and aged care facilities and a deferral of healthcare activity.
Additionally, the company blamed the worldwide semiconductor shortage, which impacted product availability, foreign exchange losses from prior year hedging contracts and a number of additional non-operating items.
Hills also pointed to the results from its New Zealand arm, which it described as a “poorly positioned and loss-making" business.
Indeed, the company's New Zealand business delivered a A$1.90 million (NZ$1.99 million) operating loss for the full year, which Hills told shareholders reflected a highly competitive trading environment, the exit of key vendors and the corresponding loss of larger project-based work.
“The cost base of the New Zealand business was restructured in the second half of FY21 and Hills continues to explore initiatives to return the business to profitability,” Hills said at the time.
Overall, the company’s trans-Tasman distribution division's underlying results were down 11 per cent, year-on-year, on revenue and 16 per cent on segment earnings before interest, tax, depreciation and amortisation (EBITA).
“With a restructure undertaken in 2020, the business had been well positioned to harness this new structure, combine it with new product offerings and was set to deliver sustained revenue and earnings growth,” Hills said.
“Whilst we did enjoy some notable successes, we were, like many others, hampered by the stop start nature of the business environment, particularly construction which underpins much of our billable revenue.
“Notwithstanding the environment, the results are disappointing, particularly in the distribution division, and the board is determined to make the changes and investment required to address the shortcomings,” it added.
The company said at the time that as it began the new financial year its new leadership team would introduce a range of initiatives to address revenue decline and support profitability with a focus on lifting sales and marketing performance, rationalising and focusing the product portfolio, controlling costs and driving greater operational efficiency.
As reported late last year, Hills NZ reported lower sales and a much increased loss after what had been a promising start to its 2020 financial year.
Revenues fell from NZ$20 million in 2019 to NZ$15.3 million in the year to 30 June, 2020, while a 2019 net loss of NZ$676,000 increased to NZ$2.3 million.
In May this year, Hills suggested it hoped to get its technology distribution business back on track under the leadership of its new CEO, David Clarke, former CEO of publicly listed health software provider Corum Group.
The new appointment, which was effective immediately, saw Clarke work with the outgoing Hills CEO David Lenz to ensure a seamless transition until the latter’s retirement on 1 July 2021.
It was revealed in February that Lenz would retire from his role after almost five years in the top job as CEO and managing director for the publicly listed distributor and health technology provider.