Shares in Adelaide-based Hills Industries (HIL) were severely punished yesterday after the company sprang a surprise earnings downgrade on the market.
Hills shares ended the day on 67.5c, down more than 14%, after being sold down to a low of 58c – where they were down more than 26%.
The point of contention – the downgrading of full year earnings by up to 40% – a shock at any time.
Hills told the market in a statement that it now expects to post an underlying full year profit of between $11 million and $14 million, well below the $18.5 million to $19.5 million range it flagged in February at the time of the interim result.
The company said that while sales in its core security, audio and communications businesses were close to its internal forecasts, it expected lower government spending and project deferrals across the construction, health and mining sectors to hurt earnings.
"While sales to March in our core security, AV, audio and communications businesses were near internal forecasts, we now anticipate continued delays in project starts.
"This is due to lower Government spending and project deferrals across the construction, health and mining sectors which have become more pronounced during April.
"Margins declined materially in March and we expect this trend to continue in the period from April through June, in part because we have not been able to recover margin compression flowing from the significant year on year decline in the $A.
"In prior years the Company’s results have typically been strongest in the fourth quarter but, based on results for the first 3 weeks of April and a re-examination of the sales pipeline, this is not expected to be the case this year.
"The Company continues to accelerate its efforts to reduce group overhead and drive further structural efficiencies in its core business. This will include removing the additional fixed costs that have been maintained in anticipation of a large acquisition. However, the Company will continue to invest in front line sales and service resources.
"The Company will also look to capture some upside from extensions to existing contracts for satellite and fixed wireless services, and will continue to participate in tenders for other installation services contracts,“ directors said.
HIL 1Y – Hills under pressure
The Company said its "cash position remains strong with net debt around $25M after allowing for the dividend payment to be made on 30 April 2015. The balance sheet remains conservatively geared.”
And the board expressed confidence in the current strategy.
"The Company’s strategic focus on security, AV, audio, communications and health technologies is sound and we remain committed to grow both organically and by acquisition,” directors said in yesterday’s statement.
"The Company continues to evaluate opportunities to prudently use the balance sheet to acquire new service revenue streams in the communications and health sectors.
"In the past few months the Company has incurred and continues to incur certain due diligence and related costs on completed and potential acquisitions.
"These costs are not included in the determination of underlying NPAT as is consistent with the calculation methodology applied over time,” directors added.
