Shares of Hills Ltd (ASX: HIL) have been hammered today after the small-cap electronics and technology company released its earnings for the full-year ended 30 June 2015.
So What: With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) enduring its most severe sell-off in recent memory today, it is difficult to ascertain how much of the stock's 8% fall can be attributed to the market's heightened uncertainty and how much should be attributed to the results themselves.
Hills was forced to undertake a major restructure as a result of a decline of manufacturing in Australia which has seen it sell business lines and acquire new companies in a shift toward services and distribution.
Management said: "We have undertaken significant activity to position Hills as Australia's first choice value added distributor in the Security, AV, Communications and Health service sectors. While most of the initiatives necessary to achieve this position have been completed, we will continue to refine our operational processes to support our staff in customer service excellence and restore supply chain efficiencies."
However, it also said that it will take further time to return the businesses to the profit levels expected by management (and the market) which is likely one of the reasons behind today's sell-off. During the 12-month period, Hills reported a 3% lift in normalised revenues to $427.8 million, while it swung to an $85.9 million loss, down from a $24.8 million profit in the 2014 financial year.
On an underlying basis (which removes one-off costs and write-downs, including a $94 million non-cash impairment), net profit after tax (NPAT) fell 59.5% to $11 million.
Pleasingly, the company reduced corporate costs by roughly $10 million during the year and will focus on improving efficiencies even further in the 2016 financial year.
Now What: Although the stock is trading at an all-time low level, the company has a lot to prove before it can convince me it is a reasonable long-term investment prospect. Until then, I'll be looking for other potentially more rewarding opportunities.
