Shares in WH Smith have plummeted by over 16% after the travel retailer announced a proposed £100m share capital raise.

The firm said that it has placed the raise after experiencing a turndown in trading conditions as a result of the Middle East conflict, which has impacted airline passenger numbers. It also cited the weaker consumer confidence environment, which it added has “further impacted spend per passenger”.

It said that it has carefully considered the appropriate capital structure for the group in light of the current trading conditions, its investment plans and the opportunities available to WH Smith over the medium term to drive shareholder value creation.

Executive chair at WH Smith, Leo Quinn, stated: "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.

"The impact of these actions will both require investment and result in a substantial non cash write off; but the returns to be had are clear.

"There is no doubt that current economic uncertainty and its effect on consumer appetite for spending has created headwinds. 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.

The announcement comes as the retailer published its trading update for the 14-week period to 6 June. In this time, the firm recorded a 5% year-on-year increase in total revenue, while like-for-like revenue jumped by 2%.

However, due to the uncertainty from the Middle East and gross margin pressures, it has reduced its headline profit before tax from a range of £90m to £105m to between £75m and £90m.

WH Smith said that expectations reflect the observed and anticipated decline in passenger numbers and weaker customer demand.

Investment director at AJ Bell, Russ Mould, said that the firm is in a "sticky situation", and it is "not the best conditions to go cap in and to shareholders".

He concluded: "The Middle East conflict has pushed up fuel costs for the airline sector and led to weaker travel demand, partially down to consumers being worried about a potential fuel shortage if the Iran war rumbles on.

"WH Smith’s decision to go all-in on the travel sector last year was unfortunately timed given what’s happened in the Middle East. There isn’t a lot the company can do apart from shore up its finances in the hope a cash injection will help it battle through difficult market conditions.

"Shareholders might take the view that its long-term prospects are still good, but their patience has already been tested by the company’s recent overstatement of profits and share price collapse. They will want as big a bargain as possible on the fundraising now to warrant the risk of putting up even more money to back WH Smith."

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