Vita Group shares take another beating after revealing extent of Telstra remuneration cuts

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Vita Group shares take another beating after revealing extent of Telstra remuneration cuts

Vita Group's shares have taken another beating after the company revealed the true extent of Telstra's remuneration cuts.

The company said that Telstra plans to cut remuneration for stores by 10 percent on 1 July 2017, followed by another 10 percent cut in the 2019 financial year, and another 10 percent in 2020. This is in addition to the remuneration changes Vita already agreed to between December 2016 and February 2017.

Vita's shares crashed from $1.29 each at the opening of trading on Wednesday to 90 cents at time of writing, a drop of more than 30 percent. In total, Vita's share price fell by nearly 60 percent within a week.

Vita owns and operates the largest Telstra store network in Australia with 107 retail stores, and is the telco's only master licensee.

Telstra said the cuts were in reaction to "margin pressures faced by Telstra in a very competitive mobility market, and the ongoing impact of the NBN rollout," according to a statement from Vita.

As a result, Vita suspended plans to expand its store network.

Chief executive Maxine Horne said the company was willing to work with Telstra to address market challenges, but was concerned with the extent of the cuts.

"We have performed strongly, creating value for Telstra over many years and intend to continue doing so into the future. We are well versed in managing remuneration change as the market evolves and as products and services go through their lifecycles," said Horne.

Horne also said that Vita would work to restore the confidence of shareholders after shares crashed by approximately 30 percent after the announcement last week.

"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. We will provide updates as soon as we can and in the meantime, thank our shareholders and other partners for their patience."

Vita is yet to reveal how the cuts will affect its yearly financial results, other than to say it would have an impact on earnings.

As part of last week's announcement, Vita revealed that Telstra was reorganising its stores into geographic clusters, a move that Vita supports because it already has a presence in 35 of the 48 clusters.

Telstra is the second store partner Vita has had trouble working with. In December 2015, Vita killed off its eight Next Byte retail stores, which specialised in Apple products, after sales fell 20 percent to $59.9 million that financial year.

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