Vita shares tumble on back of leaked Telstra document

A leaked internal Telstra document has revealed the telco giant is considering taking back control of some of its store network, potentially clashing with its major retail partner Vita Group.
SuZhou Night Recruitment

Vita shares tumbled on the news, closing 21 per cent down at $2.54.

Eleven of the identified stores are operated by listed company Vita Group, which is Telstra’s only Master Licensed Dealer and operates just over 100 of Telstra’s 350 stores around the country.

Vita released a statement to the market on Tuesday noting that conversations with Telstra are confidential.

“Telstra and Vita Group have enjoyed a strategic relationship for 22 years, presently governed by a Master License Agreement, which applies to all of Vita Group’s Telstra stores,” the company stated.

“The Master Licence Agreement has been extended a number of times, and currently extends to 2020.”

“The terms of the Master License Agreement are confidential and any significant changes to it are subject to mutual agreement.”

Internally,Telstra has identified 16 stores it believes would be more profitable if they were brought back into the Telstra Shop Network, because it would no longer have to pay sales commissions to licensees. It could take back control by not renewing the Telstra Dealership Agreement [TDA] with licensees, according to the document.

A Telstra spokesman said the document was only an “internal draft developed for discussion purposes”.

However, if Telstra goes ahead with these plans it would reduce by one tenth the number of Vita-operated Telstra stores.

This includes five stores in NSW – Macarthur Square, Tuggerah, Hornsby, Rouse Hill and Erina Fair – three in Western , Rockingham, Success and Midland Gate, and Queensland’s Chermside and Northlakes stores, and the Werribee dealership in Victoria.

“There are 16 identified stores to buy back which meet the ‘no regrets’ criteria,” the leaked document states. The ‘no-regrets’ criteria include being located in a major metropolitan shopping centre, if the regional director approves of the move, and if the store is likely to have a positive operating cash flow if it is part of the Telstra Shop Network rather than paying commissions to a dealer.

Telstra spokesman Steve Carey said “the document in question is an internal draft developed for discussion purposes only”.

“It does not reflect the viability of any of the stores listed, and no decisions can be taken on individual Vita sites due to the nature of the agreement,” he said.

“There are no current plans to amend our arrangement with the Vita Group. All conversations with Vita and individual licensees are confidential.”

He added Telstra regularly reviews its store footprint and licensee arrangements.

“The agreement we have in place with all our licensees clearly states when changes can be made and the process we must follow,” Mr Carey said.

The document noted the TDA non-renewal is underway at the independent dealership at Fountain Gate, believed to be the dealership on level two of the Westfield shopping centre.

The remaining four stores are independent dealerships in Robina, Qld; Joondalup, WA; and two in the Westfield mall in Carindale, Qld. iFrameResize({enablePublicMethods : true, heightCalculationMethod : “lowestElement”,resizedCallback : function(messageData){}, checkOrigin: false},”#pez_iframeA”);

In November 2016 Vita Group’s share price dropped 13 per cent in one day, from $4.71 to $4.09, on rumours Telstra was trying to cut dealer commissions in the latest round of negotiations. At its half year results Vita announced a 19 per cent increase in earnings but warned there will be “some softening of profitability” because a new remuneration structure has been introduced.

Vita operates stores for Telstra, FoneZone, One Zero Communications, and Sprout and recently launched SQDAthletica. It earns money from selling products and also receives commissions whenever customers sign up to a plan.

At an analyst briefing in November, Vita’s chief executive, Maxine Horne, who owns nearly 17 per cent of Vita shares, said Vita’s agreement with Telstra covereds all stores and expires in August 2020. She was asked if Kevin Russell’s appointment as Telstra’s group executive retail meant the telco would corporatise its store network, as Mr Russell had done at Optus.

She replied that there “hasn’t been any discussion and my response to that [is] it’s highly unlikely”.

WordPress theme: Kippis 1.15