Vita Group to scale back low-margin business as it forks out millions for new Telstra stores

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Vita Group to scale back low-margin business as it forks out millions for new Telstra stores

The country's largest operator of Telstra Stores, Vita Group, has hinted at plans to scale back some of its low-margin enterprise streams in order to retain profitability in ICT.

The company remained tight-lipped on which specific streams it plans to exit, but CFO Andrew Leyden did say at today's investor meeting that revenue from its business channel was down 10 percent due to dragging enterprise sales.

Its SMB business, however, was up slightly.

Vita, which owns and operates more than 100 Telstra retail stores and business centres, today announced a fall in revenue, earnings and profit for the six months ending 31 December 2017.

Revenue dipped 4 percent to $329.6 million while EBITDA was down 43 percent to $20 million and net profit was down 48 percent to $11.2 million, in line with previous guidance.

Vita upgraded its guidance in January after strong sales on the iPhone 8 and iPhone X over Christmas.

The decline in revenue was pinned on changes to Telstra's remuneration structure, which was revealed last year.

The telco cut partner remuneration by 10 percent last year, and will cut it by a further 10 percent in FY19 and FY20.

Vita said it would offset the cuts by opening more stores, though Leyden said today that the costs of the changes had already been absorbed.

Vita, which is Telstra's only master licence partner, owned 105 stores at the end of the half-year. This includes two new stores in Coffs Harbour and a Telstra business centre, which Vita acquired in December for $2.5 million.

Since then, Vita has entered into a deal to acquire another five stores from an independent Telstra stores operator for $5.7 million, plus another $3.6 million to buy the business assets of more Telstra licenses and business centres.

"We are pleased that, despite industry margin pressures, we delivered a solid interim result that exceeds guidance," said Vita chief executive Maxine Horne.

"Our team has continued to consult with our customers to deliver exceptional experiences. They've rigorously focused on cost control, and all without letting challenging conditions impact their love for what they do."

Looking ahead, Vita reconfirmed its outlook for the full 2018 financial year with EBITDA of $38-40 million.

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