MMH has announced a tidying up of its dealership portfolio with six underperforming sites to be closed by the end of the year. While there will be exceptional closure costs of c£6m, the closures will eliminate c£1.3m of operational losses expected in 2017. Although £4m of the cost is cash this will flow out over a number of years against an onerous lease, and the disposal of Marshall Leasing, which has yet to complete, significantly improves the balance sheet. Our underlying numbers remain unchanged and it should be noted that management has not needed to make a trading update despite persistent new car market weakness. The elimination of losses and manufacturer responsiveness to the weaker demand appear to be setting a solid foundation for 2018 numbers.
MMH has announced it intends to close five franchised dealerships and one used car centre, following discussions with the brand partners. Honda Mountsorrel, Nissan Boston and Vauxhall Welwyn Garden City have relatively small markets and close to existing group dealerships of the same franchise, which should assist customer retention. The used car centre in Oxford shares a subscale, high fixed cost site with the group’s Maserati dealership. The other franchise affected is Citroen Cambridge, MMH’s last new car outlet for the manufacturer although it retains authorised repairer status in the city. Combined turnover in 2017 is likely to be c£40m generating a pre-tax loss of £1.3m before overhead allocation.
Closure costs should also be partially offset by freehold site disposals and the realisation of working capital and disposal of stock held in the dealerships. The closure costs will be treated as a non-underlying item in FY17 results.The changes once again show the proactive nature of management in improving returns and protecting financial performance in the more challenging market environment.