The iconic Aussie brand famous for their clotheslines gets a welcome makeover from one particular Type-A business leader.
In 2012, executive Ted Pretty was considering retirement from full-time work. But after a successful career heading up departments for Telstra and Macquarie Capital, Pretty put the golf on hold and instead took up the CEO role at Hills Industries, best known as the maker of iconic Australian rotary clothesline the Hills Hoist.
Many insiders puzzled over the choice. Hills was a “small cap” company, and looked like a big step down from the executive’s previous roles in ASX heavyweights.
Pretty readily admits that he was seduced by the power of the Hills’ brand. The Hills Hoist was part of Australian folklore – or at least, Aussie backyards. But since his appointment, Pretty has strategically repositioned the company, shifting its focus from manufacturing to technology and communications.
Does the market share Pretty’s vision? Hills’ ASX share price has performed poorly this year – at best it’s volatile. A falling Australian dollar and soft economic growth are hurting Hills’ bottom line, and investors are yet to be convinced that the CEO is capable of saving the company from irrelevance. All of this begs the question: is Pretty worried that he may fail?
“If you can’t tell that, you’re probably not listening to me,” he says, slightly offended by the suggestion that he contemplates anything less than success. “Yes, you run into a few speed humps along the way, but I’m as enthusiastic today as when I took on the job. I’m a Type-A personality. I want to succeed, I’ve got to succeed.”
Selling an icon
Hills’ most notable and trusted product in its inventory, the Hills Hoist, turns 70 in 2015. But instead of celebrating the resilience of this Aussie backyard fixture, the company signed a seven-year licensing deal with Woolworths in December last year, letting the retailer take control of the manufacture, marketing and sales of 240 Hills household items in exchange for a royalty stream. Essentially, the hoist has been sold.
Speaking to INTHEBLACK from Sydney, Pretty says that the business of moving on the Hills Hoist was “a difficult thing to deal with, but we have no cost to capital, no inventory, no overheads and we get a guaranteed minimum every year.”
The hoist and other associated laundry products had been performing patchily for a number of years, producing about A$40 million in annual revenue. Hills’ overall turnover for this financial year is expected to nudge A$450 million (three years ago, the company turned over about A$1.1 billion.)
The symbolic nature of the deal is another matter. In some quarters, the Hills Hoist is the cornerstone of Hills Industries, not another segment of the business to be sold or outsourced. Yet Hills is Australian manufacturing in microcosm: shedding the past, desperate to innovate, fighting to survive in a highly competitive global landscape.
The divestment cuts especially deep in the clothesline’s birthplace, South Australia. The state was already struggling to come to terms with the end of its car industry. The end of Hills’ connection with the hoist, developed in a post-war Adelaide backyard, underlines what the state is going through. But Pretty says he has “not received one negative comment, not one … The only feedback I got was positive media commentary at that time. [Finance commentator] Ross Greenwood called it a brilliant solution to a difficult problem.”
A stronger balance sheet
The hoist is just one of several Hills’ businesses that have been offloaded under Pretty’s watch. Under-performing steel concerns were sold off, with the proceeds slated for ventures that are more consistent with the new “thematic” of the business in the electronics and communications area. Hills was already active in the area of patient monitoring systems for hospitals and aged care homes, as well as security systems. As Pretty told Greenwood in a radio interview last year, his view was that Hills had become too diversified. “We were involved in a lot of businesses but we weren’t leading in any particular one. By doing the restructure and selling down what we saw as the non-core assets, and focusing around our technology and communications base, we said, ‘Look, that’s a future where we can take this company that’s been around for 67 years, and make it live for another 67 years.’”
The company is now debt-free and has signed a new banking facility with Westpac, Commonwealth Bank and National Australia Bank. In the past 18 months, Hills Industries has made some small acquisitions, but Pretty’s pen is patiently poised over a chequebook as he looks to land larger complementary high-tech businesses in the security, wellbeing and health sectors. Just exactly what his criteria are, he won’t say.
Ed Prendergast, portfolio manager at the top-rated Pengana Emerging Companies Fund, believes Pretty’s approach will take time, but that the Hills business is heading in the right direction. “What they’ve done so far by selling some assets, particularly the construction-related businesses, was absolutely the correct thing to do,” Prendergast says. “Their balance sheet was stressed, they were lower-quality earning streams and, to be frank, pretty ratty businesses. Hills had a fairly disparate portfolio, some of which was challenged, so it’s been quite an achievement.”
"We can take this company that's been around for 67 years, and make it live for another 67 years." Ted Pretty
Other commentators are less buoyant. There’s a perception in the marketplace that the company has always been poorly run without a clear focus, and this perception is proving difficult to change.
The CEO himself also appears to be a factor in the market’s assessment. At Telstra in the late 1990s and early 2000s, Pretty helped drive several technology acquisitions that were widely judged not to have achieved their business aims, with purchases including Solution Six, Keycorp and Sausage Software.
One fund manager told INTHEBLACK: “Pretty went and bought internet shiny balls and was badly bitten. His history would suggest he’s a bit of a spender.”
However, this time around, Pretty appears to be taking his time. He knows all too well that the strategy of buying other businesses is fraught with risk. Many corporate disasters have occurred as a result of acquisitions that blow up down the track.
“The turnaround may not be as quick as some people would like, but I have to be careful not to be under pressure and make the wrong decision. If it takes a bit longer, a few months longer, a few quarters longer, so be it,” Pretty tells INTHEBLACK. “But I also have to respect the response of the market. The important thing is that I can’t watch the share price daily and lose focus.”
Innovation takes courage
As the market waits for Pretty’s next move, the CEO continues to streamline the business. “We’re doing all the things that the market doesn’t necessarily see: shoring up common supply chain and logistics structures, rationalising branch locations, and improving sales force disciplines and IT systems.”
Pretty isn’t afraid to offer his opinion as well. Last year he suggested the A$1.5 billion of government money used to prop up the car industry would be better distributed to 15 manufacturing companies at A$100 million apiece in order to reinvent themselves.
“Irrespective of people’s political persuasion, nothing happened under the previous government and nothing is suggesting that this government is any different,” he says. “People expected the Australian economy to bounce back after the election of the Coalition government, but it hasn’t. They haven’t spent enough on infrastructure, and they’re facing a shrinking revenue base. Their answer to that has been to cut government spending when it should be the exact opposite.”
“Couple that with a dramatic fall in commodity and resource prices and a decline in new mineral investment off the back of that, and you’ve got the perfect storm.”
In the meantime, Pretty is happy to stand by his record, especially the Hills Hoist decision.
When his 91-year-old mother heard that he was joining Hills back in 2012, she had a few words of advice: “Don’t bugger it up!”
“My mother’s a very candid person and, like most of us, she’s familiar with the clothesline,” Pretty says, laughing. “She thought I was going to retire anyway, and it was said with tongue-in-cheek.”
Pretty checks himself and injects a serious tone into his voice. “Please, make no mistake that when I get up in the morning, I’m driven by two things: leave the business in a better condition than when I found it, and two, give the company the best chance to be around for another 70 years.”
A Hills Hoist history
In 1945, Lance Hill was tinkering in his backyard shed in Adelaide’s Glenunga when his wife complained that her clothesline between two posts was being crowded by the lemon tree. So Hill designed a compact, height-adjustable rotary line made out of wire and metal tubing.His timing could not have been better. The post-World War II housing boom was about to take flight. Almost overnight, new home owners on quarter-acre blocks across Australia began planting Hill’s invention in the backyard.
The Hills Hoist starred in the closing ceremony of the 2000 Sydney Olympics, and for the past two years it was named as the most iconic Australian brand in a Reader’s Digest survey. And despite the popularity of clothes dryers, the hoist remains a fixture in the Australian backyard.
“We can take this company that’s been around for 67 years, and make it live for another 67 years.” Ted Pretty, Hills
Reinventions and rebirths
Successful companies don’t sit still for too long, especially when they run out of room to grow. Many profitable and enduring companies have achieved their long track record of success by constantly reinventing themselves.
Former Apple CEO Steve Jobs didn’t invent any of the machines that made Apple a household name, but he and his design team made them infinitely better. When it turned its attention away from computers and focused on hand-held devices, rewards quickly followed.
The minimalist, lightweight design and touchscreen technology of the iPod, iPhone and iPad revolutionised the MP3, smartphone and tablet markets. Earlier this year, Apple posted the biggest quarterly profit in corporate history – a staggering A$22.7 billion.
Ted Pretty need look no further than GUD Holdings for inspiration. The ASX-listed GUD manages a diversified portfolio of companies including Sunbeam, Oates, Dexion and Davey Pumps. In some ways, the company is still true to its automotive background, but under Ian Campbell’s stewardship from 1998 until 2013, the company became a brand owner with a large degree of flexibility. Like Hills, GUD sold an Australian icon, offloading the company’s Victa Lawncare business in 2008 for about A$23 million.
In the early 1990s, Samsung was a second-tier television manufacturer, but the South Korean company has now become the largest, most powerful electronics manufacturer in the world. The 1993 transformation involved changing tack from a high-volume, low-quality manufacturer to a high-quality concern, even if that meant sacrificing sales in the short term. As a result, Samsung became the globe’s largest manufacturer of smartphones in 2013. (Apple took back the crown in 2015).
The Hills Hoist is a true blue, fair dinkum Aussie icon. But CEO Ted Pretty sold off the clothesline and is trying to reshape the company that built it for the 21st century.
This article is from the May 2015 issue of INTHEBLACK.
Read more: Which industries will be most affected by broadband?
Read more: How can business skill up for the Asian century?