Vita Group chief "concerned" over rapidly diminishing Telstra terms

Vita Group (ASX:VTG) is moving to reassure shareholders after Telstra's (ASX:TLS) decision to dramatically drop its rate of remuneration to the retail store incrementally over the next three years.

The publicly-listed company, which owns and operates over 100 Telstra-licensed retail outlets around the country, announced late last year that it was in discussions with Telstra over commercial terms.

Earlier this week, however, Telstra briefed Vita Group on its intention to make further changes to its remuneration construct.

According to Vita Group, from 1 July, Telstra intends to reduce its remuneration to its Telstra-branded retail store operator by approximately 10 per cent.

Further, it also announced the intent to reduce remuneration by a further 10 per cent at the start of each of the 2019 and 2020 financial years.

Vita Group CEO, Maxine Horne has expressed concerns over the move and is asking Vita Group shareholders to be patient while the company engages in further negotiations with the telco.

“We are concerned about the extent of these changes, and we are currently addressing these concerns with Telstra, along with other commercial constructs,” Horne told shareholders.

“We are very aware of concerns over recent adverse movements in our share price and are working hard to restore investor confidence in our relationship with Telstra,” she said.

On 11 May, Vita Group announced that it was in discussions with Telstra over commercial terms, and that prior remuneration reductions agreed to between December 2016 and February this year were part of a response to margin pressures faced by the industry in a “very” competitive mobility market, as well as the ongoing rollout of the National Broadband Network (NBN).

It was also suggested at the time that those conditions continued to impact Telstra and the market generally, and that they had the potential to impact remuneration in the future.

At the time, the company revealed that it had halted all plans to further expand the number of Telstra stores in its network while negotiations with Telstra over remuneration and commercial terms continued.

Vita Group said that, while it continues to work with Telstra on remuneration and other commercial terms to find “mutually acceptable ways of dealing with the challenges that lie ahead,” it had suspended any plans to expand the number of stores in its network.

The move to freeze new store openings came as an abrupt backflip from earlier in the year, when the company announced it would acquire five additional Telstra stores, bringing its total to 107.

Now, Horne is telling shareholders that, while Vita Group is prepared to partner with Telstra to address broader market challenges, it will continue its efforts to negotiate on its commercial terms with the telco.

“We have performed strongly, creating value for Telstra over many years and intend to continue doing so into the future,” Horne said.

“We are well-versed in managing remuneration change as the market evolves and as products and services go through their lifecycles.”