Vita Group flags $25M hit from Telstra deal shake-up

Vita Group flags $25M hit from Telstra deal shake-up

New deal sees Vita Group agree to forego some remuneration factors in exchange for a greater store presence

Telstra retail licensee, Vita Group (ASX:VTG), has told shareholders it expects to be impacted to the tune of $25 million in FY18 as a result of the remuneration changes imposed upon it by its retail licensing partner, Telstra.

The publicly-listed company, which owns and operates over 100 Telstra-licensed retail outlets around the country, revealed in August that it had renegotiated its Master License Agreement with Telstra after the telco switched up its remuneration arrangement with Vita Group.

The new deal saw Vita Group agree to 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.

At the same time, Vita said that it had also agreed to forego some legacy remuneration components, effective from 1 July 2019, amounting to approximately seven to eight per cent of retail remuneration.

During its annual general meeting (AGM) on 27 October, the company provided further detail in a presentation to shareholders, indicating that the remuneration changes from its negotiations with Telstra are set to result in a $25 million annual impact in the 2018 financial year compared to the year ending June 2017.

At the same time, however, the company said that this financial hit would be partly offset by $5 million cost reductions, in place from 1 June 2017, performance optimisation, increased IT store numbers and an improves business IT channel.

In mid-August, Vita Group indicated it was paying considerable attention to its IT prowess across all of its customer segments, as it works to bolster its business following the substantial changes to the remuneration it receives from 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.

Telstra announced proposed remuneration changes to its channels on 28 October last year, which unfavourably impacted Vita group’s share price.

The remuneration reductions initially agreed to by Telstra and Vita Group between December last year and February were part of a response to margin pressures faced by the telco in a “very” competitive mobility market, as well as the ongoing rollout of the National Broadband Network (NBN), the company previously said.

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