Investment Case
WHSmith Travel
Over 1100
STORES IN TRAVEL LOCATIONS
Our Travel stores are located in high footfall, structurally advantaged growth locations: airports, hospitals and railway stations, primarily on turnover based leases. Travel has significant opportunities for growth and is split into two divisions: Travel UK and International Travel.
Travel UK
Travel UK is the largest part of the Travel business. Over the medium term, there are significant growth opportunities in Travel UK:
- - Space growth and format development - we are targeting around 15 to 20 new stores on average per year across airports, hospitals and railway stations, and we have recently announced that we won all 30 technology stores across UK airports, including London Heathrow, London Gatwick and London Stansted airports. These stores will trade under the InMotion brand.
- - Increasing our average transaction values and spend per passenger - through our forensic attention to space, cross category promotions, merchandising, store layouts and store refits.
- - Category development - through developing adjacent product categories relevant for our customers (e.g. health and beauty, and electrical accessory ranges) and expanding existing categories (e.g. premium food).
Sales in our air channel have broadly reflected the trends in passenger numbers, which are expected to continue to grow in the medium term. To drive further growth, we have developed new formats:
- - Large airport format (such as our stores at London Gatwick North and South, and London Heathrow T3 and T4) which is driving higher spend per passenger - a key metric from landlords.
- - Pharmacy format (such as our store at London Gatwick North and London Heathrow Terminal 2) where we have a pharmacy and extended health and beauty range, which has been well received by both customers and the airport landlords.
- - A blended essentials format (such as our store at London Stansted) which includes a combined WHSmith and InMotion store, combining under one roof a news, books and convenience offer by WHSmith with a technology range from InMotion.
We also see good growth prospects in the hospital channel and it is now the second largest channel by sales:
- - We have three store formats in hospitals: the traditional WHSmith store and we franchise Marks & Spencer Simply Food and Costa Coffee. We currently have 142 stores in approximately 100 hospitals, and we believe around 300 hospitals could take one or more of our hospital formats.
Our rail channel remains an attractive channel with leisure passengers accounting for around 40% of journeys. We continue to see opportunities to grow this channel through investment in large format store trials (such as our store at London Paddington) and our Tech Express format.
International Travel
Our International Travel business has grown strongly since we opened our first international stores in Copenhagen airport in 2009. We now have over 300 WHSmith stores internationally in 30 countries and over 50 airports.
We use three economic models to grow this channel: franchise, directly run and joint venture.
In November 2018, we acquired InMotion, a leading digital accessories retailer in US airports, with over 115 stores.
In December 2019, we acquired Marshall Retail Group, a leading and fast-growing retailer in airports and resorts in the US and Canada, with over 160 stores and a strong pipeline of awarded stores, most of which are due to open over the next two years.
We see strong growth opportunities through:
- - Continuing to win new business in the global news, books and convenience market where we currently have a small market share.
- - Building on our acquisitions of InMotion and Marshall Retail Group in the $3.2bn US travel retail market through space, passenger and margin growth. We see substantial growth opportunities in the US, which is the largest travel retail market in the world. We have 58 new stores won and due to open in North America over the next three year period to August 2024, including significant wins at major US airports.
WHSmith High Street
Over 530
STORES IN PRIME UK HIGH STREET LOCATIONS
Our High Street business is primarily located in the best locations in the catchments in which we operate, and we aim to maximise the return from these locations through:
- - Space management - forensically analysing the return from every display square meter in every store
- - Growing our margin
- - Lowering our cost base
Increasing our stationery offer helps to achieve all three of these and we only have our full stationery offer in around 100 of our High Street stores.
Utilising our space with third-party concessions, such as Post Offices, also helps to maximise our returns.
Capital Allocation Policy
Both our Travel and High Street businesses are highly cash generative and our capital allocation policy is focused on increasing value for shareholders. We have three uses for our cash:
- - Investing in our businesses where return is greater than our cost of capital
- - Returning cash to stakeholders through a progressive dividend policy and share buybacks
- - Acquisitions in markets with good growth prospects
We have a target Net Debt to EBITDA ratio of between 0.75x to 1.25x. Although the Covid-19 pandemic has disrupted our markets over recent months, we are committed to our capital allocation policy and will seek to achieve our target Net Debt to EBITDA ratio as soon as possible following a return to normal trading patterns in our markets.