09.05.2013

Mills Rental up 35%

The powered access and telehandler - Rental - division of Brazilian scaffold specialist Mills, or to give it its full name - Mills Estruturas e Serviços de Engenharia – has increased first quarter revenues by almost 35 percent.

Total revenues for the fast growing rental business were R76.1 million ($37.9 million) 34.8 percent up on the same quarter last year. The increase is due to the new depot openings and larger fleet. Operating profit for the division improved just over 20 percent to R30.99 million ($15.4 million).

A further R73.3 million ($36.5 million) was spent on new equipment during the quarter almost three times as much as in the first quarter of 2012. During the quarter the company opened one new branch, but has at least four more planned for the rest of the year as spending on new equipment continues to grow.

The company as a whole reported revenues of R239.9 million ($119.5 million) 20.5 percent up on last year, while net earnings rose by a similar level – 20.2 percent – to R39.3 million ($19.6 million).

Net debt at the company increased just over 10 percent on the quarter to R418.6 million ($208.6 million)

Vertikal Comment

It is quite amazing to see such rapid growth at a time when so many parts of the developed world are struggling to achieve any growth. Without wanting to be a kill joy, one can’t but be concerned that the speed of expansion will – in the next year or so - lead to supply outpacing demand as the most urgent needs are satisfied.

Typically the shift from traditional access to powered access moves at a pace that - while initially restricted by availability - follows construction spending growth, BUT the cost and availability of labour are also significant factors. When the European market was growing rapidly supply overshot demand several times leading to rate cutting and a recession in the industry as it waited for demand to catch up. Giving an upward trending saw tooth growth chart.

In Spain we saw similar year on year rapid growth and the usual brakes did not kick in - the graph line went straight upwards and supply overshot demand by a massive margin and kept on going, to the point where after six years it is still looking to find a balance – albeit made much worse by the economic crisis. Rapid break neck growth also brings other problems that only become evident later on as new locations are opened quickly.

Hopefully none of this will not be the case in Brazil, however there is no magic in this world and Mills projections that the national fleet will double from the current 21,000 over the next few years is hard to comprehend, given the massive growth of the past two years.

Time will tell – in the meantime it would do well to keep a cautious eye on all the underlying trends. All this said, the business looks very sound and this is a fantastic set of numbers and long may they continue this way.