Mears has warned of 'challenging' market conditions as it experiences issues with former contracts and a softening of activity in the housing sector.

In a trading update, the housing maintenance contractor said it is taking a £16.5 million hit due to a number of contractual performance guarantees included in the 2013 sale of its Mechanical and Electrical division.

In addition, an "increased level of uncertainty" over Housing has led to softening of revenues for the current financial year, caused by clients' attention being diverted towards ensuring their portfolios are "safe and compliant".

As a result, the Group has now launched a cost-cutting drive.

The Board said: "The challenges encountered in 2017 have led to the Group taking a more detailed review of its central support structures so as to ensure that its support functions deliver best value.

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"This is particularly relevant given the evolution towards a broader service offering with a changing support requirement.

"Mears has commenced a right-sizing across a range of support functions which will span the year end. Further detail will be provided at the time of the full year results in March 2018."

David Miles, Chief Executive, said: "I do not wish to gloss over our 2017 performance and I understand the importance of delivering against our financial targets in the short term. Whilst some of the short-term challenges in Housing could not have been anticipated, it is frustrating a number of other opportunities that could have helped mitigate these challenges did not develop quickly enough. Nonetheless, I am pleased with the progress made over the last year across the entire Mears business and on a range of important indictors.

"I am particularly excited at the prospects for Mears over a medium-term time horizon and the management team are focused on the quantum of bidding opportunities currently in the pipeline. 

"The Mears operations are performing well and I am very encouraged that this excellent performance is putting us in a good position to tender for new opportunities that until recently, would have been beyond our reach. The Group is well placed to deliver against its 2018 targets."

(LM/MH)