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Hills Holdings restructures, sells steel business assets

The creator of the iconic Hills Hoist and manufacturer of metal building materials and electronic equipment, Hills Holdings (ASX: HIL) announced in its just released annual report a major restructuring of its business. It has sold off its steel interests in the form of its 49% ownership in Korvest, a manufacturer of steel and electrical cable products, which previously comprised 6.7% of its revenue.

In addition, after the 30 June balance date, it has made an agreement to sell its other Orrcon and Fielders steel assets to BlueScope Steel (ASX: BSL)

Group Managing Director and CEO Edward Prett said, “Hills will no longer pursue a broad diversification strategy, but instead focus on businesses where innovation and technology can deliver improved margins and earnings growth.”

Revenue was up 3.9%, and although there was an underlying net profit after tax of $19.2 million, a final statutory net loss of $94.1 million resulted, due to impairments and restructuring costs.

With the restructuring comes a new focus on electronics manufacturing and distribution. The report stated, “We are concentrating on opportunities as an integrated solutions provider in technology and communications market segments, where higher returns are available.”

The sale of steel assets is projected to net approximately $80 million after selling costs. The company had already paid down its net debt from $88 million to $4 million as of 30 June, so the sale proceeds will put it in a surplus cash position. This can be applied to future acquisitions as well as improving financial position.

A dividend of 3.25 cents per share, fully franked, was declared, down from 5 cps previously in March.

The company has announced a share buyback continuation that gives Hills the option to acquire up to 10% of its issued shares over the next 12 months. The share price reacted with a +11% and +10% rise on Monday and Tuesday respectively.

Foolish takeaway

Many times focusing on core capabilities and scaling down the company is the best way to move forward, getting rid of the excess, and keeping the business that makes the greatest return. Investors will benefit from a leaner company with a new drive.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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