Hills deal exit costs Woolworths millions
Woolworths will pay out millions of dollars in licensing fees as it extinguishes a deal with manufacturer Hills.
The protracted and costly shut-down of loss-making hardware chain Masters has triggered another bill shock for Woolworths, after it agreed to extinguish a deal with manufacturer Hills that will see it pay out millions of dollars in licensing fees in an upfront payment.
Hills, whose portfolio of legacy consumer brands includes the iconic Hills hoist clothesline, said yesterday that it and former partner Woolworths had agreed to terminate a distribution contract the parties inked in December 2014, which licensed more than 240 consumer products and related brands to Woolworths for seven years.
The end of the deal, which would have delivered minimum royalty payments to Hills of about $2 million a year, was triggered by Woolworths’ decision to close down its Masters hardware chain and walk away from the sector.
Hills said in a statement to the stock exchange that Woolworths had agreed to pay an amount in settlement of all rights and obligations under the licensing agreement.
“While the terms of the settlement remain confidential between the parties, this has the effect of bringing forward three years’ worth of licence fee income and cash receipts to Hills,’’ the company announced.
This could mean Hills will scoop up as much as $6m that will be recorded as income in the first half of fiscal 2017.
Hills said its products would remain available through retail outlets in Australia and New Zealand as usual.
“Hills is considering potential permanent replacement brand licensing arrangements for all Hills Home Living (HHL) products, and is commencing discussions with interested third parties,” Hills said in a statement.
The deal with Woolworths was originally sealed by former Hills chief executive Ted Pretty as part of a radical transformation of the manufacturer’s business. The joint venture would have seen more than 240 Hills products, including its iconic Hills clothesline, sold through Masters and Woolworths other hardware venture, Home Timber & Hardware.
Hills recently unveiled a net loss of $68.3m for 2016, reduced from a loss of $85.9m in 2015 as revenue slipped to $328.9m from $428.8m. The loss was triggered by $66m in impairments to its goodwill and intangible assets, deferred tax assets and freehold property as it restructured into a company more heavily weighted to technology and health services.
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