IRN interview: Sergio Kariya, CEO, Mills

Sergio Kariya, CEO of Mills, Brazil’s largest access rental company, talks to KHL’s Brazil-based journalist Fausto Oliveira about the impact of Covid-19, the company’s strategy following its merger with Solaris, and rental opportunities in the country.

Construction and business activity throughout the world have been significantly affected by Covid-19. For Brazilian company Mills, which now boasts an access rental market share approaching 30% following its merger with Solaris in May 2019, the pandemic brought added complexity both to daily operations and the merger itself.

Sergio Kariya, CEO, Mills.

Mills CEO Sergio Kariya tells IRN the company faced key challenges when Covid-19 broke out at the beginning of 2020.

“The first thing was keeping the whole team safe, in a situation where we didn’t know how dangerous and lethal this virus might be. The second was to establish a business continuity plan. Many customer industries are considered essential sectors, so as it turned out we’ve had constant work.”

Further complexities in the early stages of the pandemic lay in the widely differing responses of Brazil’s state municipalities and governments.

“There were cities where we were banned from opening our depots, others with stronger restrictions. Meanwhile we also had to keep services running, for commercial as well as operational reasons.”

The company’s revenue was impacted by Covid-19, especially in May, with revenue almost 27% lower compared to March.

“Our worst time was May, and the next few months were about recovery. Every month we got closer to pre-Coronavirus levels. Our third quarter result shows that in September we almost reached those pre-Coronavírus levels again, with a difference of no more than 8% in relation to our rental volumes.”

“We are very optimistic for the last quarter and 2021,” he says, adding that the company will continue to monitor the situation to assess how to operate moving forward. (Kariya was speaking to IRN in November.

Solaris acquisition
Covid-19 came in the immediate wake of Mills’ acquisition of its competitor Solaris. The merger was completed in May 2019 and what followed was an integration plan rolled out throughout 2020 and completed on 31 December.

“Covid-19 meant some elements of the merger were delayed while others were accelerated,” says Kariya. “In terms of physical integration, given social distancing, we have suspended the unification of branches in states where we have a presence. The plan was to close one of the branches and use single locations. We halted this because it required an environmental team to evaluate the premises, and an infrastructure team to adapt and move the equipment. Due to travel restrictions, this plan was postponed to 2021.

“On the other hand, as everyone who has participated in a merger knows, different cultures and processes must come together. The biggest challenge for a newly merged company is to establish what its culture is.”

“Mills and Solaris were fierce competitors. We were not partners, we were rivals. Putting people in the same management team from the different businesses creates difficulties. Curiously however, the pandemic meant everyone worked together against a common enemy, the Coronavirus. Efforts were required to create an environment in which the customer did not perceive that staff were working remotely at their home offices. This resulted in an impressive sense of unity.”

New efficiencies
As with any merger, new efficiencies are also emerging, he says.

“Branches with multiple professional teams, when unified, obviously generate cost optimisation. Scale brings this, along with higher productivity. This has a positive impact on the organisation. We have identified many opportunities in terms of systems and processes. Mills had some good and some bad processes and the same goes for Solaris.

“We have the analytical ability to observe processes and identify which ones work better; which process we kept as it was and what else we could improve. It’s an ongoing job as part of the integration. But in addition to this we are implementing a plan to continue improving internal processes, increasing productivity and driving efficiency.”

With the merger creating Brazil’s largest access rental company, it is likely that new AWP competitors will emerge, but Kariya says innovating at Mills will be his focus over the medium to long term.

“A market leader with 28% market share in aerial platforms has undoubtedly been born; when we look at the second placed business, with 5 to 6%, there’s a considerable difference. However, I do not think we want to think this way. What we are looking for with this merger is to create a different company, in terms of customer service and speed of responsiveness.”

“The company is big, and because we are a public company, it has a broader structure than our competitors. We want to transform the company to be more agile, closer to the customer. We want it to be one that continues to transform and make a difference. We want to have a different company in three, four or five years.

Mills now has an esimated 28% share of Brazil’s access rental market.

“And without a doubt, when this kind of transformation is created in the industry, competitors will merge, new competitors will appear, they will identify opportunities to occupy this space. So, we are on the lookout for this. We don’t currently see any very strong movement, but there’s no doubt that there are a lot of people looking at the sector.”

Looking ahead, the company faces more immediate challenges as it positions itself for recovery. Despite a rebound in Brazil’s real estate industry, the recovery of the country’s infrastructure sector has been sluggish, which, he says, will have a decelerating effect on Mills’ own performance.

Room to grow
“We understand that there is room to continue to grow, but there is a very important segment, not only for the sector, but for Brazil, which is infrastructure, because it creates jobs and improves the country’s productivity. We believe very strongly in this infrastructure channel, not only for our formwork and shoring business unit, but also for the rental teams. Some of our equipment is being under-utilised due to the absence of infrastructure development in the country. So yes, we understand that infrastructure is necessary to significantly improve business.”

Mills Solaris is also positioned to anticipate changes to business practices and rental models in the wake of Covid-19. One potential change might be the rise of online rental.

Critically for the rental sector, in an environment of economic uncertainty, global trends point towards a slowing down of sales of equipment to end users and a greater reliance on rental, says Kariya.

“Due to general global developments and the pandemic, the optimisation of resources is increasingly critical. Rental optimises resources. On the other hand, the aerial platform sector has a much larger volume of equipment in rental circulation than other products. Of course, we will seek efficiency and move towards rental, as has been happening in the world. In Brazil, it is happening more gradually, but I think we are certainly heading that way.”

Digital strategy?
Meanwhile, Covid-19 and social distancing will accelerate transformation in digitisation, he says. “There will be a hybridisation of face-to-face work activities and the home office. We were already assessing how to do this prior to the pandemic; today it is a little clearer that there are activities that can be effectively carried out remotely, and others that were not so effective and resulted in lower productivity.”

“There is also a challenge in terms of how the customer finds us. We have been researching the possibility of e-commerce, and I believe that this can be accelerated, because of the needs of the customer, who demands ease and efficiency, just as retail does throughout the world.”

Beyond steering through the Covid-19 crisis and the company’s post-merger transition, Mills is also positioning itself for the transition to a carbon neutral future.

“At Mills, we have developed an internal program for social impact mitigation in this period, seeking to improve the lives of those most in need. Responsibility for social and environmental issues is increasingly linked to businesses and organisations. [From an environmental perspective] this is particularly relevant to AWP in terms of transitioning to the use of more electrically powered equipment. This emphasises what we must do as a company to improve the environment and the society around it.”

South American expansion
Other longer-term plans could also include expansion within South America.

“We’re looking at many opportunities. We see countries with different cycles, products with different cycles. The company’s radar for opportunities is broad in the industry in which we operate, encompassing products and potentially countries.

“Our role as a company is to look at all the alternatives and possibilities. I would say that in Brazil there are many opportunities to better occupy key market areas. The product we work on, aerial platforms, is very underpenetrated, so it has room to continue to grow a lot in Brazil.”

“We are very happy with the third quarter 2020 results, not only because rental volumes are almost equal to pre-crisis levels, but also because the company generated profits in the last quarter.

“Six years ago, a large proportion of our business was in the construction unit [for formwork and shoring equipment], which consumed a lot of resources during Brazil’s infrastructure and economic crisis, and created financial losses for us. Following six years of losses, in this quarter we reported a small profit, one million reais [US$189,300], which shows we are on the right track in terms of the transformation of the organisation. Today we are very confident in Mills’ future path for years to come.”