11.03.2015

Tough quarter for Mills

The aerial lift division of Brazilian company Mills has posted its fourth quarter results, showing a sharp drop in profitability

The rental business, which is made up of aerial lifts and telehandlers saw revenues for the full year improve 3.8 percent to R370.8 million ($119.1 million) in spite of lower rental rates, thanks to a larger fleet and better utilisation. However operating profit for the year fell around 18 percent to R115.8 million, due mainly to higher depreciation costs.

In the fourth quarter it was different story, the economic challenges now facing Brazil, were reflected in a revenues which fell almost eight percent to R83.9 million ($27 million) while operating profits dropped 68 percent to R12.2 million ($3.9 million). This due to lower rental rates, lower utilisation, weak product mix and higher depreciation. The company has also allowed for more bad debts as some companies take longer to pay, increasing exposures to any failures.

Capital expenditure for the full year was R108.7 million ($34.9 million) compared to R270.5 million ($86.9 million) in 2013. In spite of the slowdown the business opened two new branches, one in Cubatão, in São Paulo state, and other in Juiz de Fora, in Minas Gerais state, taking the depot network to 30 locations.

Vertikal Comment

Given the challenges that the market in Brazil is currently experiencing this result could have been a good deal worse. The company is of course facing the fact that it added an awful lot of equipment very very rapidly, and thus the steep rises in depreciation charges at a time when rates and utilisation are shrinking.

However its accelerated growth strategy has given it a dominant position in the market, and if it can stay in positive numbers over the next year or two until, a) the economy picks up and b) underlying market growth/aerial lift take up catches up with availability, it will be in an excellent position for mid to long term growth. It will though need to keep an eye on the way the fleet ages, while it cut new additions late last year, it will need to review this regularly to ensure that it does not create a large hole in the fleet age profile that then becomes difficult and expensive to fix as the market picks up.