Telstra severs Vita Group ties amid COVID-19 and NBN financial hit

Telstra severs Vita Group ties amid COVID-19 and NBN financial hit

First half results sees net profit and earnings continue to fall

Telstra stores

Telstra stores

Credit: Telstra

Telstra has severed its 26-year relationship with retail licence holder Vita Group, opting to take full ownership over its self-branded retail store network. 

The current dealer agreement between Telstra and Vita Group will cease 30 June 2025.

Telstra has 67 stores it owns and operates directly, with another 166 branded stores run by independent licensees and a further 104 stores run by Vita Group, which expressed concerns in 2017 over Telstra's decision to dramatically drop its remuneration rate by about 10 per cent. 

Negotiations with independent licensees about an agreed transition to Telstra ownership will begin shortly with the process involving offering roles to current store staff in the majority of cases as part of agreed transitions, which will take place in the next 12 - 18 months. 

For Vita Group, conversations about the next steps begin 11 February. 

In a statement to shareholders, Vita Group said it intends to work collaboratively with Telstra to finalise these arrangements as soon as possible, ensuring the agreements will be suitable for both parties, shareholders and team members. 

Telstra group executive for consumer and small business Michael Ackland said the move was not an easy decision, but was required to keep pace with the growing digital economy and to give Telstra more flexibility to respond to consumer needs. 

The news comes as Telstra revealed its first-half FY21 performance, which saw net profit tumble 2.2 per cent to $1.1 billion and earnings before tax also falling 11.7 per cent to $4 billion. Revenue also collapsed 9.7 per cent to $11 billion. 

Telstra said two contributors to its decline were the estimated impact from the in-year National Broadband Network (NBN) headwind of $370 million and an estimated $170 million impact from COVID-19.

Taking these two factors into consideration, Telstra said underlying earnings before tax was broadly flat compared to the same period in FY20.

In relation to its T22 strategy, Telstra CEO Andy Penn said progress was on track, but there was still work to be done and was focusing 2021 on a digitisation program to be rolled out in the mass market highlighting customer experience. 

Telstra has also revealed it has made progress in its legal restructuring of the organisation announced in November, with the establishment and proposed monetisation of InfraCo Towers. Discussions were also underway with the Australian Competition and Consumer Commission (ACCC), the Australian Communications and Media Authority (ACMA), relevant government departments and NBN Co on the restructure process. 

“We will continue to work very closely with our partners, people and stakeholders throughout this process as we navigate the range of existing commercial, regulatory and operational requirements,” he said. 

Penn said Telstra had significantly progressed the establishment of InfraCo Towers as a separate operating business with significant work to be completed at the end of FY21. In November, Telstra said it was splitting the group into three separate entities - InfraCo Fixed, InfraCo Towers and ServeCo. 

“We plan to commence the process for external strategic investment into InfraCo Towers early in the first quarter of FY22, with binding offers to be submitted by the second quarter of FY22,” Penn said. “We are undertaking significant verification and due diligence on our towers and property, appointed key members of the management team and advisors, and preparation work is well advanced to meet our timetable.”

Penn said significant progress had also been made in finalising inter-company agreements between ServeCo and InfraCo Towers, the redesign of processes, and implementation of new tower asset management systems.

Additionally, Penn also indulged shareholders in his ambition to reach underlying EBITDA of between $7.5 billion and $8.5 billion by FY23. 

“Our investment in innovation and technology, digitisation and networks, improving our customer experience and being disciplined in our capital management, mean at the start of this decade, as Australia digitises its economy, Telstra is in a strong position to grow,” Penn said. 

“Our discipline in delivering T22 has brought enormous change for Telstra which is supporting the turnaround of the company. The hardest part of any transformation is often seeing it through to the end, and we have more to do in customer experience in particular.

“To get any real benefits from all the effort we’ve already made, Telstra needs to be bold.”

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