VITA GROUP FORECASTS RECORD FULL YEAR PROFITS, BUT EXPANSION PUT ON HOLD
Written on the 11 May 2017 by Ben Hall
VITA Group (ASX: VTG), which operates Telstra-branded retail outlets, has forecast a record full year underlying EBITDA for 2017 of between $63 million and $66 million despite a "challenging" second half.
The profit forecast compares to underlying EBITDA in FY16 of $62 million, and was issued just a month after rumours that Telstra wanted to take back control of some of its high performing stores from Vita, sending VTG's share price into a freefall of 21 per cent in a day.
Brisbane-based Vita Group operates 107 Telstra stores, and Fairfax Media reported at the time that the telco was considering taking back 11 stores from Vita as it believed it could operate them more profitably.
Telstra said the document quoted by Fairfax was "for discussion only" and denied they would take back control of the stores.
"Whilst there have been some new challenges in the second half of FY17, I am proud of the achievements that our exceptional team members have delivered so far," says CEO Maxine Horne (pictured).
Vita Group also announced it was in discussions with Telstra over its commercial terms, as the telco faces margin pressures in a competitive market and the ongoing impact of the NBN rollout.
As a result, the company says it has suspended plans to expand the number of stores in its network as it "works closely and confidentially with Telstra on remuneration and other commercial terms to find mutually acceptable ways of dealing with the challenges that lie ahead."
There will also be a new structural arrangement with Telstra in which the company's owned and licensed stores will be organised into "geographical clusters".
It means that licensees would be invited to apply to build their Telstra store networks within a particular geographic region.
Vita Group CEO Maxine Horne says the company's scale and position as Telstra's only master licensee, means it expects to retain a "sizeable" portion of the network as it is represented in 35 of the 48 Telstra-determined geographic clusters.
"On Telstra's plan to organise its company owned and licensed stores into geographic clusters, we are very supportive," Horne says.
"Creating a geo-clustered network allows for intensity of leadership, which ultimately drives better outcomes for customers.
"An added advantage is the lower cost that comes from clustering. Vita is already well positioned in this area as it adopted this strategy a number of years ago.
"This move is absolutely in line with the optimisation program that Vita has undertaken with its own stores over the last three years and we will work closely with Telstra to continue optimising our network and, in doing so, bring mutual benefits to both Vita and Telstra, our customers and our broader communities."
Business News Australia
Author: Ben Hall