For those of you I haven t met, my name is Jennifer Hill-Ling and I am the Chairman of your Company.

Transcription

1 Chairman s Address Good Afternoon Ladies and Gentlemen. It is a pleasure to welcome you to our 56 th Annual General Meeting. For those of you I haven t met, my name is Jennifer Hill-Ling and I am the Chairman of your Company. I have been advised that there is a quorum of members present and declare the meeting open. As part of the Hills Safety Policy please note the location of the exits in the theatre. Let me introduce my fellow directors, CFO and Company Secretary who are with me today. At my immediate right is: Ian Elliot David Spence Fiona Bennett Peter Stancliffe On my left, is our Managing Director and CEO Ted Pretty. Next to Ted is our CFO Grant Logan and next to Grant is our Company Secretary, Gai Stephens. The Notice of Meeting was distributed to all shareholders. With your consent, I will take it as read. The minutes of last year s Annual General Meeting, held on 1 November 2012, and the minutes of this year s General Meeting held on 19 April 2013 being in order, have been signed by me and are available for any interested shareholders to review. In addition to those shareholders present at today s meeting, I can confirm that the holders of 121,128,235 ordinary shares or 50.28% of the Company s shares are represented by proxies today. Details of how the proxy votes were cast in relation to the proposed resolutions will be advised when we move to the formal part of the meeting. The annual accounts of the Company and its controlled entities and the reports of the directors and auditors for the year ended 30 June 2013, have been published and distributed to shareholders. Our auditor, Neil Faulkner from KPMG, is present today. Neil is available to answer questions relating to: the conduct of the audit;

2 the audit report; accounting policies of the Group; the preparation of the financial statements; and Auditor independence. The 2013 financial year was a significant one for the Company. We have implemented successful change in the senior management ranks, with Ted Pretty completing his first full year as CEO in September this year and making some important changes within his team. We have made good progress since we last met on the renewal of the Company, implementing the restructure and transformation and moving from a large diversified group heavily exposed to the manufacturing and steel sectors towards a 'one Hills' company focused on innovation and the provision of integrated solutions mainly in the technology and communications sector. Please be assured that we have appreciated your support during this period. Today I will provide you with: 1. A broad overview of our performance over the past financial year, including details of: the restructure and transformation charges taken in the period; the sale of non-core assets; and some highlights as we implement our new strategy. 2. Ted Pretty, our CEO, will then provide an update relating to: our cost reduction and transformation; an overview of the operating performance of our three business segments over the last 12 months; our future strategy; and the outlook for the current financial year. 3. Following Ted s update, I will address a number of organisational and governance issues including: sustainability; and our executive remuneration strategy. 4. Finally, we will consider the formal resolutions set out in the Notice of Meeting.

3 As owners of the Company, your views are important to us. As with last year, we invited shareholders to ask questions in advance of today. During our presentations this afternoon we have sought to address these questions. Moving now to market conditions and the performance of the Company during the past 12 months. THE YEAR IN REVIEW During the year we developed a strategic plan for the transformation of the Company, and put in place a new senior executive team to deliver it in an environment where the Australian and world economies remained volatile We experienced particularly in the first half of the year: aggressive competition from imported products; subdued activity in government and commercial projects; low business and consumer confidence; and a depressed construction market. Market demand and performance in the second half notably in our Electronics and Communications businesses showed signs of improvement. FINANCIAL RESULTS These market conditions, together with the restructuring and transformation project and the classification of assets held for sale, had a material impact on our results for the year in review. Our total continuing and discontinuing revenue was $1.02 billion which was down slightly on the prior year. After cash generating unit (CGU) impairment and restructuring costs and the fair value adjustments associated with classifying assets as held for sale and other associated gains or losses on the disposal of non-core businesses totalling $113.3 million after tax, we recorded a statutory/reported loss of $94.1 million. On an underlying basis our earnings before interest and tax (also known as EBIT), and before CGU impairment, restructuring and closure costs and other associated impairments for the year, was $33.4 million down $11 million on the prior year. The corresponding underlying net profit after tax (or NPAT) number was $19.2 million, which was down by $6.8 million on the prior year. Our underlying earnings per share decreased from 10.5 cents to 7.8 cents during the period but our return on equity increased from 11.1% to 12.3%.

4 These EBIT and NPAT figures are non-ifrs (non-international Financial Reporting Standards) numbers which the Company uses internally to assess the operating performance of the business. Reconciliations to the IFRS numbers are provided in the footnotes to the investor presentation lodged with the ASX on 20 August RESTRUCTURE AND TRANSFORMATION CHARGES We have regularly updated shareholders and the market regarding the restructure and transformation charges that were necessary as we embarked on our restructure and transformation. I think the increase in the share price over the last 12 months reflects recognition by the market that this was necessary to reposition the Company for growth in the future. The chart on the screen behind me details the impairment and restructuring charges taken in the period under review and the impact of the subsequent classification of Orrcon and Fielders as assets held for sale. The change in quantum of the write downs from those presented at the EGM in April, is a consequence of the accounting requirement to write down the business asset values of Orrcon and Fielders as a result of them being classified as assets held for sale and carried at fair value. The majority of these write-downs, impairments and provisions are non-cash in nature and will not affect continuing operations. CASH FLOW Cash flows from operating activities increased significantly during the period in review to $81.4 million, an improvement of 55% on the prior year. This was due in part to a $39.8 million inflow from reductions in working capital, which was a pleasing result. FUNDING Hills net debt at 30 June 2013 decreased to $4 million in comparison with $92.4 million in the prior year and our gearing, measured as net debt to net debt plus equity, was only 1.4% at the end of the period. As a result we had undrawn facilities of $202.7 million at 30 June 2013 and we comfortably met and continue to meet all of our banking covenants. The earliest date for review of any of our bank and debt facilities is August SHARE PRICE Since our last AGM the Hills share price increased from 84.5 cents to $1.845 and in the 12 months since our last AGM our total shareholder return (TSR) is up 122%.

5 CAPITAL MANAGEMENT Now turning our attention to capital management. DIVIDENDS As a Board, we recognise how important dividends are to our shareholders and following receipt of a favourable tax ruling from the ATO, the Company paid a fully franked dividend of 3.25 cents per share on 27 September The Board has also reconfirmed its intention to target an annual fully franked dividend payout ratio of 50-75% of net profit after tax. Given our strong cash flows and low debt levels, we continued to suspend our Dividend Reinvestment Plan and Share Investment Plans. BUYBACK Notwithstanding the increase in our share price, we have extended the on-market buyback of up to 10% of our issued capital this year. We will continue to buy-back shares on market for so long as it is: earnings per share accretive; and will not affect our ability to; pay a dividend; or continue to invest in our growth strategies. To date, the Company had purchased 7.1 million shares representing 2.9% of the issued capital at an average price of $1.87 per share for a total cost of $13.3 million. STRATEGIC DIRECTION At last year s AGM and at our EGM in April this year, we outlined our new strategy which will see the transformation and renewal of Hills from a large diversified group heavily exposed to the manufacturing and steel sectors which are very capital intensive and which are undergoing structural changes - towards a 'one Hills' company focused on innovation and the provision of integrated solutions mainly in the technology and communications sector where the Directors consider that higher returns are available. We have developed a number of new products during the year in our Hills Home Living and Technology businesses and we will continue our focus and investment in innovative products and services. Ted will shortly expand on this. We have set up a display in the adjoining room behind to showcase some of these products and services which you can view first hand after the meeting.

6 The Company will retain its Hills brand connection with the home and other trusted environments such as educational institutions, government and business enterprises. I am pleased to be able to advise that earlier this year Hills won the Readers Digest award for Australia s most trusted iconic brand. As the Company is no longer pursuing its holding company role, investing in a number of different businesses, we recommend that you vote in favour of removing the word Holdings from the Company s name later in the meeting. I can assure you that the name change and rebranding which you see today will be phased in and will not add significant costs to the business. SALE OF NON-CORE ASSETS In line with our strategy to restructure Hills by exiting non-core businesses and closing unprofitable businesses we closed the Solar Hot Water business, and sold our Team Poly water tank business. We also sold our 48.6% interest in Korvest Limited, the Bailey Ladder business and the Healthcare Equipment business. Since 30 June this year, we have also sold our plumbing supplies business LW Gemmell. In August this year, we entered into interdependent agreements to sell Orrcon and Fielders subject to customary terms and conditions precedent and ACCC approval. Following a rigorous process, the Board on the recommendation of management and external advisers, determined that a sale of both assets to BlueScope was in the best interests of all shareholders. The ACCC is currently conducting its review including seeking industry input and we remain confident of a response from the ACCC in the next couple of months. We are expecting a positive outcome and will update the market when we receive its findings. The combined divestments of Orrcon and Fielders will result in gross cash proceeds to Hills of $87.5 million (before costs to sell and completion adjustments). LAND AND BUILDING VALUATIONS During the year we reviewed the valuation of our land and buildings likely to be sold as part of the transformation of the Company. As a result of that review, the land and buildings were re-valued down by $12.6 million. The majority of this devaluation is recorded directly in equity as a reduction in revaluation reserves and a small balance has been included in the impairment and restructuring charges. Hills are now progressing with the sale of various properties. The restructure and transformation process has meant that a number of the sites we have occupied are no longer used and are surplus to our needs. We are better off from a financial

7 perspective leasing not owning property as we exit our industrial businesses and move to a third party logistics supplier, which can be scaled and customised to meet our needs. The CEO and management team continue to be focused on our customers and in improving efficiency and reducing cost. Whilst we will continue to have a national footprint, as we complete the sale of our steel assets, we will not require the same level of support services and we need to locate our sales and management teams as close to our customers as possible. Consequently, the Company will reduce its corporate footprint including corporate office space in South Australia and elsewhere however, we will be maintaining a presence in South Australia. ACQUISITIONS As I mentioned earlier, we will reinvest the proceeds of sale of our non-core assets, in innovation and new businesses in the Technology and Communications sector, delivering integrated solutions into trusted environments. Consistent with this strategy, we established Hills Health Solutions and purchased two new businesses in the health sector - Merlon Health Communications and HTR (Hospital Television Rentals) in September this year. These businesses provide communications, nurse call, monitoring and entertainment systems for hospital and aged care facilities. Ted will provide some more detail on our growth strategy for Hills Health Solutions shortly and we will be showcasing some of the current product range in our display after the meeting. The total initial consideration for the businesses is $33.5 million with additional earn outs payable subject to FY14 earnings performance. The transactions were cash funded from Hills existing facilities and are expected to deliver strong earnings margins, consistent with Hills strategic and financial investment criteria. The businesses are not forecast to be EPS accretive in the current financial year, as we are required to expense all of the acquisition costs this year, however they will be accretive next year. These two investments, position Hills as the number one provider of hospital and aged care communications, nurse call, monitoring and entertainment systems. This gives us a presence in over 300 hospitals and aged care facilities in Australia servicing approximately 40,000 beds. We invite you to view some of the exciting products and services offered by these businesses on display here today at the close of the meeting. Our entry into interactive patient care in Health sees us enter one of the fastest growing industry segments in the economy. The combination of an ageing population and the

8 increase in demand for healthcare and aged care facilities affords Hills exciting opportunities and the deployment of the National Broadband Network will increase the population's access to high-speed internet services and afford new opportunities in remote healthcare. Hills intends to work with major broadband and media service providers to deliver a new stream of remote health communications and entertainment outcomes. I will now hand over to Ted, to provide you with his update and some further information regarding our growth and innovation initiatives. [MD & CEO Address] Thank you Ted. I will now move to the third part of my address reviewing Corporate Governance, Sustainability and Executive Remuneration. CORPORATE GOVERNANCE Ensuring high standards of corporate governance to protect and advance shareholder value continues as a prime focus of the Hills Board and our practices are set out in the Annual Report and provided in more detail on our website. In June this year Matthew Campbell accepted a full time executive role as Executive Director, Hills Home Living and thus retired from the Hills Board. I would like to formally thank Matt for his dedicated and enthusiastic contribution as a non-executive Director of the Company. As with previous years, we completed our annual review of both, the Board and individual Directors skills, experience and performance. We will announce the appointment of a new director next calendar year with skills and experience in the ICT (information communication and technology) and managed services sectors. SUSTAINABILITY Hills recognises its responsibility to consider the different needs of its stakeholders to ensure sustainable outcomes. These efforts are centred on four key areas: the importance of our people; our commitment to ensuring the health and safety of our workforce; our impact on the environment; and the communities where we operate.

9 Specific details of this policy are set out in the Annual Report. Safety is one of Hills most important core values and the Board and management are committed to a policy of zero harm to people who work in the Group safer and more engaged employees deliver better performance at all levels. During the year, the Board visited a number of Hills manufacturing facilities, and we were pleased to witness first-hand the progress and enthusiasm among our employees to improve our operations across all facets of our business. We achieved a Lost Time Injury Frequency Rate of 0.6 which represents a 14% decrease over the prior year and a Total Recordable Injury Frequency Rate (Lost Time Injuries and Medical Treatment Injuries combined) of 5.7 which is a 38% decrease over last year. Hills is also committed to creating a diverse workplace and the Board has established a set of diversity objectives which are outlined in the Annual Report. Hills cares for the environment and we are committed to reducing energy, carbon emissions, water and waste across the Company s operations. During the period in review, we achieved a 34% reduction in total energy consumption and a 38% reduction in greenhouse gas emissions. Your Company is not a liable entity under the carbon pricing mechanism and is not required to purchase carbon units in relation to its total emissions despite reporting under the Act. However, we did experience cost increases, passed on from suppliers of resources, goods and services as a result of the Carbon Emission Legislation introduced on 1 July REMUNERATION Shareholders will shortly have the opportunity to ask questions - and to vote on - the Remuneration Report included in the Annual Report. The Board is cognisant that executive remuneration is an issue of significant and sustained interest for shareholders. The Remuneration Committee is comprised of non-executive directors and is responsible for recommending to the Board, the direction and strategies for Director and the Senior Executive remuneration and benefits. SENIOR EXECUTIVE REMUNERATION A key part of our success is to ensure that we have a remuneration strategy to:

10 attract and retain talent; motivate and reward outstanding performance; and align Senior Executive and shareholder interests. In a time of significant business transformation, achieving the one Hills vision has required us to review our remuneration strategy. Key changes which have been implemented to align with our new strategy include: 1. The exit of a number of Senior Executives, and the appointment of a new team to implement the successful transformation of Hills from a large diversified group with a focus on the manufacturing and steel sectors, to a company with a strategic focus on innovation and service in the technology sector; and 2. This transition necessitated the repositioning of Hills remuneration strategy by: Firstly, revising our FY13 incentives to focus on recognising the work involved in the restructure and transformation and its importance to correctly position the Company for the 2014 year and our future; and Secondly, ensure that salaries for the current financial year are strongly aligned to our strategic plan and linked to achieving better financial results. Our Short Term Incentive Program for 2014 is geared 80% towards delivering financial outcomes and 20% towards non-financial, strategic goals. As in prior years the Board engaged external independent advisors to provide comparative data for the Senior Executive roles in Hills. The data confirmed that executive remuneration for your Company is competitive and reflects the levels required to attract and retain highly experienced executives, required to establish shareholder value through a time of significant transformation in the business. Last year your Directors withdrew the Resolution relating to the grant of Performance Rights to Mr Pretty until this calendar year. We will shortly ask you to vote on the issue of Performance rights to Ted. No long term incentives vested during the year in review. BOARD REMUNERATION There has been no general increase in the Board Fees since September 2008, however, the Board did approved an increase in the fees for the Audit, Risk and Compliance Committee Chairman and members effective from 1 June 2013 in recognition of the increased workload required as a result of the transformation and restructuring of the Company.

11 Total fees were well below the fee pool previously approved by shareholders in CLOSING In closing, I would like to stress that while structural changes in the manufacturing and steel sectors and the weak building market remains a challenge we are starting to see an improvement in business confidence and activity since the Federal election and our Technology and Communications businesses are performing well. Our focus for the current year will be to continue to strengthen our service and product offering and to diversify our revenue streams within our technologies and communications businesses with a greater contribution from recurring revenues. I would like to thank Ted and his team for their commitment and enthusiasm throughout the year, their contribution has been immense. To my Board colleagues, thank you for your valuable direction, advice and support to me and the Management team during the past year. Our path to earnings growth is now clearer and we remain committed to delivering sustainable earnings growth and optimising shareholder value as the implementation of our new vision progresses. On behalf of the Board and Management we take the opportunity of thanking you, fellow shareholders, for your support during the year and assure you of our dedication to position the Company for growth and the delivery of superior returns. Thank you Contacts Mr Ted Pretty Group Managing Director & CEO Media Mr John Field Field Public Relations