Why the Hills (ASX:HIL) share price is falling today

The Hills Ltd (ASX: HIL) share price has slipped today as the company announced impairment plans and a trading update for FY21. At the time of writing, the Hills share price is down 2.8% to 17 cents.

Operating across Australia and New Zealand, Hills provides health solutions including nurse call solutions, patient engagement systems and wi-fi networks in hospital and aged care facilities. The company also operates a distribution division, working in integrated security, information technology and technical services.

What did Hills announce?

In today’s release, Hills advised that it will make financial amendments as it seeks to re-organise its accounting books. The assessment follows the group’s completion of the external foreign exchange review. 

As a result, Hills will make one-off adjustments of $4.9 million mostly comprising non-cash items. The revised figures will be implemented in the first-half of FY21, ending 31 December.

The impairments include:

• Write-off of assets relating to exited businesses – $1.7 million;
• Write-off of assets relating to exited vendor arrangements – $0.4 million;
• Reassessment of valuation of aged, slow-moving and demonstration stock – $1.4 million;
• Reassessment of asset lives and property settlements – $0.86 million; and
• Write-off of NZ deferred tax assets arising from the current poor trading conditions – $0.57 million

While these write-offs have been necessary, Hills said that its Australian distribution business was beginning to improve. This comes as the company experienced tough first quarter trading conditions due to COVID-19.

Furthermore, its Australian health solutions business has returned to normal trading levels during the current quarter.

In its New Zealand operations, Hills is still facing headwinds, as announced in its annual general meeting (AGM) early last month. It does not envisage recovery in the 2021 financial year – as opposed to its Australian business.

Previously, the company said its objective was to deliver shareholders a full-year net profit in FY21. However, due to asset impairments and mixed trading conditions, the company does not expect to meet this. Instead it will focus on delivering a second-half net profit.

Hills is scheduled to release its first half FY21 results early 2021, along with a further trading update.

What did management say?

Commenting on the accounting adjustment, Hills CEO and managing director David Lenz said:

While it is disappointing to have to recognise further one-off adjustments to our asset values, we are pleased that the underlying businesses are recovering from the impact of COVID-19 and remain well positioned to capitalise on market opportunities in the second half as Australia emerges from the pandemic and our cash position remains strong.

Hills share price summary

The Hills share price has been hit hard over the last 12 months, falling almost 50% year-to-date. The company reached a 52-week high of 48.5 cents in February.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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