With the sound of train-wreck
By Julius Grafton
Seldom in Australian corporate history has value been wrecked with as much vigour as at Hills Limited, where the limping audio-visual division was sold to Amber in November.
The story starts with Hills Limited buying Audio Telex Communications in 2005 for around $35 million. ATC was Australia’s largest distributor of professional audio, managed spectacularly well by Roy Morgan, and led by long time audio guy Rod Craig.
ATC was joined into Hills and then Hills CEO David Simmons decided to let his new SVL (Sound, Video, Lighting) division get on with things. Run by Rod Craig’s son Stuart Craig, it certainly did, building a strong project focus.
When Simmons retired, the CFO Graham Twartz stepped up, and continued to understand SVL and leave it to make spectacular profits. Turnover headed over $60 million a year, more than half of that from the high margin Crestron distribution.
Hills share price hit an all-time high of $A6.72, which had the company valued at well over $A1 billion.
In 2012 the building industry was in downturn after the GFC and parts of Hills were exposed. The board replaced Twartz with Ted Pretty (pictured at top), whose main claim to fame was a $1 billion write-down at Telstra where he championed the acquisition of Pacific Century Cyberworks – which then tanked.
Ted set about reorganising Hills, and issued a directive to all divisions to cut overheads by 10%, effective immediately. The SVL division was outperforming the rest, but it suddenly had to slash and burn. The effects were immediate – the busiest week ever, the warehouse couldn’t fulfil all the orders due to staff shortages.
Many highly skilled long term SVL staff were laid off. Some time later, SVL chief Stuart Craig departed, only to turn up as region manager for Crestron. That clock was ticking.
Don McConnell was one brand manager shown the door in a round of ‘right-sizing’. He promptly set up his own distribution firm and didn’t have to wait too long for some of the Hills brands he had handled to call him. Now his Audio Brands Australia is a fast growing firm, handling prestige products like Meyer Sound, Mipro and FBT.
Exactly the same thing happened at the Hills NZ outpost. Marcel Reinen was also shown the door after nearly 20 years. He set up Pacific AV which mirrors Audio Brands Australia – and could not be happier.
Ted leased an expensive city office and set up a centralised call centre. Where an SVL client had previously called someone they knew to place an order, suddenly they were talking to people with no idea.
Strangely in 2014 Ted then acquired Audio Products Group for $A15 million. APG was very well managed and owned by Ken Dwyer. The immediate problem with this was that many brands already handled by the SVL part of Hills clashed with the brands that Ted was bolting on with APG.
APG departing owner Ken Dwyer had prepared a road map for the merged business, but it was ignored. It is not known if it ever was shown to the board.
A long and relentless series of brands were lost, often the stronger ones. Each exiting brand found a home at an SVL competitor.
At this point in time, SVL was returning between $A6 and $8 million in profits, but with the disorganisation this was plummeting.
Eventually Crestron took control of their brand and set up local distribution, headed by Stuart Craig, ripping well over $30 million in turnover and as much as $A5 million in yearly profits away from Hills.
The board started to realise the ship was sinking, and encouraged Ted to leave. With a payout, of course.
But the rot had set in. Morale was low. Two final dumb moves were left to play after the three years of Ted. The audio visual division had two things left that had potential. One was distribution of L-Acoustics which was about to explode with the introduction of immersive audio.
In 2017 as details emerged of L-Acoustics L-ISA product, it was apparent that the brand would accelerate at a great rate for Hills, provided funding was applied for stock. It was not forthcoming. The brand walked away to Jands – where it accelerated at a great rate.
The other was Australian Monitor, the ‘house brand’ of audio products acquired with Audio Telex Communications. Management did see the potential, and invited me to go to Melbourne and have a look at what they were doing.
At that meeting, Shane Meyers waxed lyrical about how Hills had a great asset in Greg Hicks – the Australian Monitor technician who had been with the firm since it was started – by me. ‘We can ring Hicks and get the answer to ANY question’, he enthused.
Like many things at Hills that didn’t last long – Hicks was in another wave of retrenchments not long after.
The scorecard today: Hills spent $35 million on Audio Telex, and $15 million on Audio Products Group for a total of $50 million. They sold the remnants of the audio visual business to Amber for $5.5 million.
At least the share price has recovered from its all-time low. It is now 20c, valuing the whole firm at less than $50 million. For the shareholders everything is a disaster.
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