Vita Group steps up IT focus after Telstra remuneration deal

Vita Group steps up IT focus after Telstra remuneration deal

Consolidates SMB and enterprise channels into one business ICT division

Vita Group (ASX:VTG) is paying considerable attention to its IT prowess across all of its customer segments, as it works to bolster its business following substantial changes to the remuneration it receives from its licensing partner, Telstra.

“Vita decided at the end of FY17 to consolidate the SMB [small and medium business] and enterprise channels into one business ICT division, reflecting the growing importance of ICT across all customer segments,” the publicly-listed company told its shareholders on 18 August.

“With the business channels now representing 13 per cent and 15 per cent of the group's revenue and gross profit respectively, the focus in the coming year and beyond will be to continue to grow revenues, deliver improved profitability and partner with Telstra to drive consolidation in what remains a fragmented market,” it said.

The focus on IT across its customer segments comes as the company reaches a new agreement with its licensing partner, Telstra, which sees a number of changes in the remuneration it receives from the telco.

Vita Group revealed on 11 August that its renegotiated Master License Agreement with Telstra saw it forego some remuneration factors in exchange for a greater store presence.

The new arrangement will see the number of stores Vita is able to own and operate under the Telstra branding expand to 110 in the 2018 financial year and 115 in FY2020.

But this came at the cost of some legacy remuneration components, amounting to approximately seven to eight per cent of retail remuneration, which is expected to be partly offset by a further expansion to 115 stores from this date.

Now, it appears as though the company is also looking at its IT offering and consultative approach to selling to businesses, both small and large, as another way to make up for the lost remuneration ratio.

In addition to its Telstra retail outlets and business centres, Vita Group also has its own IT brand, Vita Enterprise Solutions, which provides solutions to large enterprise and government customers.

During the financial year, Vita Group saw revenues from its SMB and enterprise channels rise by 20 per cent, and although the pre-tax earnings (EBITDA) result was modest in the context of group earnings, growth in relative terms was significant, the company said.

“This again reflected the group's growing capability in consultative-selling and providing value for customers,” Vita told shareholders. “Vita has also implemented a number of initiatives to reduce its cost base. The consolidation of the SMB and enterprise channels implemented at the end of FY17 will deliver greater efficiency in FY18.”

The company revealed, in financials for the year ending June, that its retail information and communication technology (ICT) channel delivered a two per cent lift in revenue and a one per cent increase in EBITDA, despite like-for-like revenue declining five per cent as a result of remuneration reductions, mainly impacting in the second half.

According to Vita Group, the impact of remuneration reduction was offset by an increased focus on consultative solution-selling, enabling multi-product sales and a reduction in performance variation across the company’s network.

“A point of differentiation is Vita's ability to consult with customers and provide insights to deliver greater value for the customer and this will be central to Vita’s strategy in FY18 to drive up-sell and cross-sell, in both the retail and business channels,” the company said. “In addition, there will be an ongoing focus on reducing performance variability, which will benefit productivity.”

Broadly, the 12-month period ending June saw Vita Group deliver a five per cent increase in revenues from continuing operations to $674.6 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations was $65 million, up five per cent on underlying EBITDA in the prior year.

Meanwhile, net profit after tax (NPAT) from continuing operations was $39 million, up 11 per cent on underlying NPAT in the prior year.

Vita's portfolio, as at 30 June 2017, included 105 Telstra Licensed Stores, 21 Telstra Business Centres and one Fone Zone store.

The Group added eight Telstra retail stores to the portfolio in FY17, closed one Fone Zone store and two Telstra retail stores, the latter of which occurred under a commercial arrangement between Telstra and Vita.

The Group's One Zero brand was retired at the end of the financial year, in line with Vita’s strategy within the telecommunications sector, to focus on the Telstra brand.

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