WH Smith will issue up to 26 million new shares to bring in cash amid fresh profit warnings.
The travel retailer this morning slashed profit forecasts by £15m, blaming the Iran war for lower growth in the air travel market.
Like-for-like revenues for the 14 weeks to 6 June were up just 2% for the group, buoyed by 7% growth in hospital shop revenues. But UK like-for-like air travel sales fell 1%, and US air like-for-likes grew 1%. US like-for-like revenue from resorts fell 9%.
WH Smith said it had also been forced to ramp up promotional spend amid a decline in brands’ marketing investment, putting pressure on gross margins.
The group’s share issuance is intended to fund a total transformation of WH Smith’s legacy processes and systems as part of its “self-help programme”.
Group CEO Leo Quinn explained to investors that while WH Smith was “at heart, a good business” its transformation needed to accelerate – and the group needed cash to make it happen.
“There is no doubt that current economic uncertainty and its effect on consumer appetite for spending has created headwinds,” he said.
“In this environment, sorting legacy issues while investing in the core model requires the financial flexibility of a stronger balance sheet in lock-step with self-help. This placing is a prudent and proactive step to accelerate our transformation of what is, at heart, a good business with some great people and clear opportunity for profitable growth.”
Quinn was brought in by the WH Smith board in January to steady the company after it was rocked by an accounting scandal that wiped £40m off its North American division’s profits last year.
He added WH Smith was taking action to “sell, exit or renegotiate” loss-making and low-return business, and replace directly-run operations with franchises in smaller markets.
“The business has a strong core and operates in attractive markets with ample scope for profit expansion, particularly in North America,” Quinn said.
“However, we need much greater capital discipline and a laser focus on returns. In recent years, the outcomes from certain acquired businesses and contract obligations have been very disappointing. Our priorities are to build an efficient and effective foundation for WH Smith and use this to drive a growth strategy managed for profitability.”
WH Smith suspended its dividend in April after a slump in profits in the first half of the year from £21m to just £3m.
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