For 69 years Hills has been an iconic Australian brand, mostly due to the hills hoist. Now chief executive Ted Pretty speaks to Paul Skelton about embracing change.

Most Australians are familiar with the Hills Hoist. After all, it is a true national icon. First manufactured in Adelaide in 1945, the Hills Hoist is listed as a national treasure in the National Library of Australia.

It’s hard to believe that a simple adjustable clothes line could be the foundation for one of the largest technology companies in the country.

For many years, Hills was best known in this industry as the local distributor of Crestron. In recent times the company has streamlined its operations, selling several brands and acquiring leading tech brands, such as Herma Technologies in 2012 and Audio Products Group in June.

Observers attribute this new attitude and consolidated market approach to chief executive and former Telstra group managing director Ted Pretty.

“When I joined the business less than two years ago, we were a diversified holding company,” Ted says.

“We had steel businesses, we had water tank businesses … we had 28 different businesses.

“Interestingly, we had a cluster of businesses in AV and comms, which was where we were making our money.

“So we sold the other businesses, paid down our debt and integrated the company. Then we started to grow. We decided we wanted to be the market leader in the AV and comms space.

“We decided to be aggressive and build more scale, which is why we’ve been gobbling up other businesses. We’ve also gone into industry-specific areas. We bought three digital health businesses that supply ‘nurse call’ products and other technology for hospitals.

“We will be making more acquisitions in this space and will announce them shortly. If I could find more things to buy, I would, but Australia is a very small market.”

Such aggressive growth has given Ted a unique insight into how the AV world works.

“There are some fundamental shifts taking place in the Australian AV and comms industries, including a massive shift to IP.

“Take the security market as an example. Security is a $3.6 billion industry in Australia, including security guards and other traditional security services. But, as far as technology goes, the market is only growing at about 1.5% per annum in revenue.

“This is largely because of the shift to IP, which is cheaper, and prices are coming down so rapidly. So we’re seeing a lot of growth in sales of devices and integration, but it’s not having a positive impact on revenue.”

That said, Ted believes revenue growth will come.

“IP makes it so much easier to install and deliver a complete solution. I honestly believe there will be a big pickup, but just not at the moment.

“If we have made any mistake in our history it was probably not moving fast enough in transitioning to this new IP world – which I think we’ve rectified in the past 18 months.

“We could have got here a bit earlier, but we’ve caught up now by bringing in people from different industries that have been through that change.”

The third fundamental shift, Ted says, is a move towards bundling, particularly in the home automation sector.

“Integrators and distributors need to ask themselves: ‘What services can I wrap around the selling of devices?’

“For a company like ours, which does a lot in the value-added distribution space, this must include financing.”

Ted believes financing will be the thing that breaks open the market.

“There is a lot of interest among end users for AV and comms, but people don’t always have the initial capital.

“However, if you can offer a finance option and give your clients a monthly recurring cost, you’ll be able to transition into paying customers those people who might not otherwise be able to afford a system.”

Ted’s plan would also be beneficial to dealers, as it would improve monthly cash flow and allow budgeting around a regular income.

“It’s not that difficult to implement a system like this. It’s already happened in the telco market as well as the broader IT market. Security, AV and home automation are a bit behind the times when it comes to turning products into services.

“When the building technology market wakes up on 1 July, it has to sell the entire next financial year over again. Telco operators wake up on 1 July and they know people will still have their phones, paying for their service.”

Ted suggests a transition period of three to five years before integrators could be earning 50% of their revenue from product and the rest from the services they sell: integration, installation, financing or operational maintenance.

“At least 10-15% of their revenue should be annuity streams – recurring rent, maintenance or support charges. This is the way the world is heading.

“But that’s a good thing for integrators. Put simply, instead of getting $100 up front you could get $30 a year for the next five years, which is $150.

“This is far more revenue security than you’ve ever had before.

“And, because you’re financing the system, you’re logging the inventory at each location. So when a product’s lifecycle declines you can go out and upsell your client to a new system and initiate a new contract.”

Ted expects Hills to be offering financing plans in the next six months.

“Anybody who thinks change isn’t coming to this industry is in for a rude shock,” he says.

“Products will be changing and business models will be changing – you won’t make money tomorrow the same way you made it yesterday. That’s the scary part.”