Mears Group PLC (LON:MER) has swung to a loss in its first half and said it is planning to reduce staff numbers as it looks to complete a restructuring of its business.
In a trading update for the six months to June 30, 2020, the housing and care provider said it had secured interim arrangements with a majority of its maintenance clients to reduce its financial risk, however, customers representing around 5% of its maintenance revenues have been closed as the risk could not be mitigated during the coronavirus (COVID-19) pandemic disruption.
READ: Mears moves to some emergency-only contracts during coronavirus lockdown
As a result, Mears said it expects to report revenues on continuing activities of £405mln in the first half, down from £439mln in the prior year, alongside a pre-tax loss of £6mln compared to a £16.7mln profit in 2019, which included costs and inefficiencies associated with the pandemic.
The company said it expects a recovery in activity levels in the second half of the year, assuming infection levels remained low, as its core maintenance business returned towards normal levels.
Mears also said it expects new order intake for the current year to be low, however, a number of its existing contracts had been extended while new bidding opportunities were on hold.
The firm has increased its banking facilities by £22.7mln and is evaluating its portfolio to deliver financial returns for shareholders and accelerate its aim to reduce its debt.
Meanwhile, the company said it will be completing restructuring through the second half of the year which will lead to staff cuts, however, it said this was not wholly a result of coronavirus but also a drive to ensure its longer-term success.
"The group has made excellent progress and is continuing to take the necessary steps to address current challenges. Whilst it has been essential for the group to maintain a sharp focus on short term operational and financial management, it is pleasing that the group has also taken positive and considered actions during this period to drive improvements which will deliver better value to the business over the longer-term and that will ensure that the group is stronger and well-positioned once the UK sees a return towards normality”, Mear's chief executive David Miles said in the statement.
In a note on Wednesday, analysts at Liberum Capital cut their target price for Mears to 150p from 175p and retained their ‘hold’ rating, saying they expected the company to rationalise its portfolio further, with the disposal of its Scotland Domiciliary Care business planned in the current year, however, they added that the group “may need to request a covenant waiver in December” for its loans.
The broker said that while the company’s balance sheet was “stretched” there was “scope for earnings to recover in [2021]”.
Mears shares were flat at 145p in early trading.