Millennium Services Group Ltd: A Classic Turnaround Story

Millennium Services Group Ltd (ASX:MIL) is a market leading provider of cleaning & security services, predominantly to tier-1 property trusts and retailers (~75% of revenue in FY20). The business employs over 5,000 people and it is the coordination and utilisation of these people across the groups contracted facilities that determines group profitability. Between FY16 and FY18 the fundamentals of people management slipped, resulting in labour inefficiencies, poor tendering practices, a bulging cost structure and higher debt via an acquisition that MIL paid too much for. In November 2018 these problems were acknowledged, and new Board and management installed to fix them. Fast forward 18-months and significant progress has been made, albeit impacted by COVID. Debt has been refinanced and $20m repaid this year, an $11m profit improvement program implemented and largely complete and ~70% of the workforce migrated to new rostering technology. The entire workforce has been moved to modern award wages and compliance and disclosure (including financial) has improved markedly. This restructure coincides with recent IBISWorld cleaning sector forecasts for FY22-FY26 of 3.6% CAGR growth (compared to CAGR -0.5% between FY17-FY21) and combined with a company focus on diversifying into new markets such as commercial, Government, education and aged care, MIL is well positioned for medium-term revenue growth. Gross margins provide the most upside for the group, with the 12.1% achieved in FY20 well below historical (~17%) and targeted (~14%) levels. An analysis of peers suggests the 14% targeted range is well within range and can be achieved with minimal addition to operating costs.