In Australia, the commercial cleaning services industry boasts a $2.2 billion market valuation, with its size having grown 2.5% per year on average between 2017 and 2022. Lucrative as it may sound, the pandemic did little to boost the industry. A tight labour market, supply chain issues and Covid-induced shutdowns proved a difficult time for businesses. Plus, post-pandemic, there was a surge of new competitors, which has limited revenue recovery.
On the other hand, however, as hygiene and cleanliness became a top priority, clients looked for cleaning services that would ensure the safety of workers and customers. The success secret for commercial cleaning service providers was in securing long-term contracts, which is what the cleaning, security and integrated services company Millennium Services Group (ASX: MIL) has been focusing on.
In Q1 FY24, it reported a negative cash flow of $3.5 million from underlying operating activities, largely driven by increased labour costs. Two major items impacted the Q1 FY24 and FY23 operating cash flows. For one, the additional fortnight of wages during the quarter, more than the June quarter, amounting to an incremental $6.5 million of cash payments in Q1 FY24. Secondly, the favourable timing of debtor collections in late June 2023 and 2022 contributed to the strong June quarter cash collections (but reduced the amount available for collection in the September quarters).
The September quarter is typically a period with significant net cash outflows. Nonetheless, the result for Q1 FY24 trumps the Company’s Q1 FY23 results.
Millennium’s total revenue stood at $71.3 million, up by $3.3 million or 4.9% compared to the June quarter’s $68 million. That’s because the Company won new long-term contracts and continued pursuing customer industry diversification. Its contract revenue was $66.5 million in Q1 FY24, rising by $3.8 million or 6.1% compared to contract revenue of $62.7 million in Q4 FY23. This offset the $500k decline in ad hoc revenue during the same period.
Finally, the Company spent $60.8 million on labour costs, including cleaning and staff costs, and recorded customer cash receipts of $72.8 million.
Millennium provides cleaning, security and integrated services to various clients, including shopping centres that comprise 78% of its revenue in each segment. Its client roster includes some big names, including the Crown hotel chain, the NSW government, and Myer.
Its FY24 forecast includes $300 million to $305 million in revenue, marking a 13 to 15% increase on FY23’s $265.8 million. This increase is set to come from its businesses across Australia and New Zealand. Moreover, it anticipates its EBITDA to be between $12.2 to $13.2 million, up from FY23’s $7.1 million.
Cleaning and security services are often subject to volatility, with events like the pandemic throwing a spanner in the works. However, having long-term contracts provides a much-needed financial cushion. Millennium has a few long-term contracts locked in, including contract extensions of over $310 million in cleaning and security contracts across 13 major assets until June 2028; a new five-year contract for Security Services in WA and NSW with a term value of $51 million, and a three-year contract with a new global client, Amazon, across eight logistics centres in WA, SA, VIC, and NSW.
Alinda is a Business Reporter for The Sentiment
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