Travel retailer WH Smith has announced it is raising new capital through a placing and offer of new shares as it grapples with a downturn in trade and a probe into past accounting issues.
The company, which offloaded its historic high street stationery business, has experienced a fall in trading conditions as a result of the conflict in the Middle East which has impacted bookings. In a trading update it said weaker consumer confidence environment has further impacted spend per passenger.
The board said it has considered the appropriate capital structure for the WHSmith group of companies in light of current trading conditions, its investment plans and the opportunities available to it over the medium term to drive shareholder value creation.
It sees the capital raise as the best option for shareholders and that raising equity is a “prudent and proactive step” which will strengthen the balance sheet, enable continued execution of the group’s growth and transformation agenda, provide greater confidence around the group’s leverage position, and reduce its reliance on debt funding as it executes its long-term growth strategy.
The capital raising and trading update came as accountancy watchdog, the Financial Reporting Council (FRC), launched an investigation into PwC’s audit of WHSmith, after the Big Four firm signed off accounts later found to have overstated the retailer’s revenues and profits.
WH Smith, which operates around 1,300 travel stores globally in airports, train stations and hospitals, shocked the market last year when it cut forecasts for its North American division.
Some payments were recognised too early, artificially inflating financial performance and enabling senior managers to hit performance targets.
The announcement wiped nearly £600 million off the FTSE 250 group’s stock market valuation in a single day.
PwC, which has audited the retailer since 2015, signed off accounts covering the years in which the overstatements occurred. The errors went undetected until a member of WH Smith’s finance team came forward. PwC flagged the accounting errors only after the company disclosed the issue last August.
An independent review by Deloitte found that WHSmith had overstated revenues over several years, forcing chief executive Carl Cowling to step down.
The review identified a “target-driven performance culture” in the North American business, weaknesses in the finance team’s composition, and limited group oversight of US finance procedures. In December, the Financial Conduct Authority launched its own investigation into potential breaches of UK listing and transparency rules.
Following Cowling’s departure, WHSmith installed former Balfour Beatty chief Leo Quinn as executive chair to rebuild investor trust. PwC said it would fully co-operate with the FRC, adding that delivering high-quality audits was fundamental to the firm.
The FRC has the power to fine companies and ban individual auditors who fail to meet industry standards. It is also investigating PwC’s work for Digital 9 Infrastructure and Babcock.
Shares in WHSmith, which sold its UK high street business last year to focus on travel retail, have more than halved over the past year, giving a market capitalisation of £622 million.
The group suspended its dividend this year as it seeks to reduce debt.
#Smith #raising #capital #watchdog #probe #Daily #Business