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Highlights

  • WHSmith Divests UK High Street Business: The £76 million deal with Modella Capital allows WHSmith to become a focused global travel retailer.

  • Strategic Shift to Travel Market: WHSmith Travel, accounting for 75% of revenue and 85% of trading profit, will continue operations in 32 countries, including UK airports, rail stations, and hospitals.

  • Financial Strength & Growth Plans: The transaction enhances WHSmith’s financial profile, boosting revenue growth, profit margins, and shareholder value.

WHSmith PLC (LSE:SMWH) has announced the sale of its UK High Street business to Modella Capital for an enterprise value of £76 million. The transaction, which excludes the WHSmith brand, marks a major strategic shift as the company pivots entirely toward its high-growth global travel retail business.

The deal will provide WHSmith with gross cash proceeds of £52 million, with net proceeds of approximately £25 million after transaction and separation costs. The company intends to reinvest these funds in line with its capital allocation policy, prioritising the expansion of its travel retail operations.

Strategic Rationale: A Pure Play Travel Retailer

Over the past decade, WHSmith has transformed into a leading global travel retailer, operating over 1,200 stores in 32 countries. While the UK High Street business remained profitable, it became a smaller portion of the Group’s revenue and earnings. In the financial year ending August 31, 2024, 75% of WHSmith’s revenue and 85% of its trading profit came from its travel business.

With growing consumer demand for travel essentials—including food, beverages, health and beauty products, and tech accessories—WHSmith’s travel retail strategy has diverged significantly from its traditional high street model. The decision to divest the UK High Street business aligns with the Group’s core growth strategy, which focuses on:

  • Increasing passenger spending at travel retail locations.

  • Optimizing store space for maximum revenue generation.

  • Expanding in new and existing markets globally.

  • Capitalizing on rising passenger numbers as global air travel is expected to grow 2.5 times by 2050.

Financial Growth and Improved Profitability

The transaction removes exposure to the UK High Street segment and increasing its focus on high-margin international travel retail. Key financial benefits include:

  • Stronger revenue growth: Proforma revenue growth in 2024 would have been 10% instead of the reported 7%.

  • Enhanced profitability: Proforma trading profit growth would have been 15% compared to the reported 13%.

  • Sustained cash flow generation: Despite the divestment, WHSmith expects to maintain robust free cash flow.

WHSmith’s Travel business generated £1.47 billion in revenue and £189 million in headline trading profit in 2024. Even after the transaction, the company remains highly cash-generative, with a proforma free cash flow of £45 million and a steady free cash conversion rate of 32%.

Continued Capital Investment & Shareholder Returns

WHSmith’s capital allocation policy remains unchanged, with a focus on reinvesting in the business where returns exceed the cost of capital. The company will continue expanding its travel retail footprint by opening new stores, upgrading existing locations, and securing premium retail spaces in high-traffic areas such as airports.

Additionally, WHSmith remains committed to its progressive dividend policy and plans to maintain dividend growth in line with headline earnings per share (EPS). The company also intends to continue share buybacks and aims to return to its target leverage ratio of 0.75–1.25x EBITDA by August 2026.

Outlook & Operational Efficiency

Following the transaction, WHSmith expects to achieve cost efficiencies by reducing central costs by approximately £4 million by August 2026. The company has also secured refinancing at a financing cost of 6.3%, while maintaining a tax charge of around 25%.

Capital expenditure for the fiscal year ending August 2026 is projected at £110 million, with a focus on travel retail expansion. Once its current share buyback program is completed, WHSmith expects to have approximately 127 million shares in issue.