Iconic Australian technology and services brand Hills Limited (ASX:HIL) has provided a profit guidance and also announced a $94m asset write down in an announcement to the ASX this morning.
Following a comprehensive review of its books Hills has determined that the value of its goodwill, intangible assets or deferred tax assets are currently too high and should be reduced by a total of $94m. This write down will be carried out as a non-cash impairment charge in the reported result for FY15. Whilst the impairment will not have any impact on future cash flow, it will significantly affect the full year results, which are due be released on 24th August 2015.
In its guidance update Hills informed shareholders that it expects to announce a full year underlying net profit of $11m for FY15. However due to the one-off impairment and additional non-operating costs of $5m it will result in a net loss of $86m. This compares to an underlying profit of $27m last financial year (FY14). In light of recent developments Hills’ management has also decided to wipe the dividend.
On 27th April Hills already informed the ASX that second half earnings were expected to be lower than first half earnings. The guidance provided was $11m to $14m. Today’s announcement confirms the struggles of Hills and emphasises that a companywide strategic review is needed in order to foster sustainable results. The focus will be on saving costs and finding ways to make the business more efficient. Fees paid to non-executive directors were already reduced by 20%.
HIL was last traded at 53.25 cents, which is a slight increase of 1.4% following the announcement. Over the last 12 months HIL’s share price has declined by a staggering 70%. Year to date the equity has fallen 55% and is now trading at the lowest level in decades.
Uncertainty will be the only consistently for Hills. As an iconic Australian brand nobody enjoys seeing the downfall and foreign ownership may potentially be the only way to save Hills. If the strategic review fails to have a significant impact on sales, then Hills may potentially follow David Jones and give up its domestic ownership in order to survive.
Author: Simon Herrmann
Aug 07, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.