itim Group Plc (LON:ITIM) Chief Financial Officer Ian Hayes caught up with DirectorsTalk to discuss the company’s return to profitability, key financial milestones, and strong future outlook amid growing retail demand.
Q1: Ian, could you talk us through the key financial highlights, especially the 260% increase in adjusted EBITDA and the considerable improvement in margins?
A1: I think the key financial highlight for the business was moving back into profitability. Our goal for 2024 was to breakeven as a business, and we did slightly better than that. So, I’m delighted with the result, taking the business back into profitable territory again, the first time since the IPO.
I think to understand the increase in EBITDA; you really need to understand our revenue streams. We have two revenue streams in our business:
The first one is subscription revenues. This is recurring and it builds for long-term growth and stability, these generally arise from big transformation projects, take up to 12 months to implement and generally generate large subscription values.
The second element is services revenues. They’re generally smaller, short-term projects, which we undertake for our existing customers. They’re shorter in nature, generally three months, but which drive in-year profitability and cash. So, with services revenues drive in profitability in 2024, we focused more on short-term projects, which increased our services revenues by 31%, all of which drop through to the bottom line and increase profitability.
Moving to the margin improvement. With the IPO monies, we built our headcount to provide some resilience towards the future, which means we can generate more revenue without increasing our cost base. So, all of this, without us having to increase our cost base, we can increase our services revenues, which we did by 31%, which all drops through to EBITDA, which inevitably, with our cost base static, it will improve your margins with increased turnover.
Q2: Can you talk us through the strategic milestones that we achieved through 2024?
A: In my mind, there were two strategic milestones in 2024. The first being the renewal of Majestic and The Entertainer to long-term five-year contracts, which for us as a business, I think is a true endorsement of the unified platform and how our customers value Itim.
The second element was signing up a £10 billion turnover retailer to our Profimetrics platform, which demonstrates how we’ve matured as a business that we can now attract interest from large retailers. I think what was important here. It was a highly competitive bid, there were 10 retailers in the bid competing with the likes of DemandTec and Revionics and other local sizeable competitors but with itim Group coming out on top.
For me, what this demonstrates is how retailers of all sizes are now viewing the group, they’re recognising the quality of our solutions in delivering proven outcomes to increase profits.
There’s this old adage that big businesses buy from big businesses and I think this was a bit of a breakthrough moment for us, because what it showed is this huge retailer was prepared to buy from the group against large multinational competitors. They seem to be valuing proven quality outcomes versus seeing a small cap company, which is a major shift of how we are being perceived in the marketplace, which probably explains why our pipeline is so strong.
Q3: itim Group’s offering reduces costs and improves efficiencies for retail companies. Are you therefore seeing increased demand in the current environment?
A3: Yes, we are, it’s in the press. The retail sector has been hit really hard with cost increases from the removal of the business rates relief, the increase in minimum wage and, of course, the results of the statement.
Additionally, we’ve now got the knock-on effects of the Trump tariffs, which is causing global disruption in supply chains, which is leading to increased production costs from countries affected by US tariffs, notably China.
These increased costs are often passed down the supply chain, resulting in higher prices for UK retailers sourcing products from these regions, which inevitably will lead to lower demand from customers, which will impact retailers’ revenues and profits. As a result, retailers are now coming to us looking at how they can move faster to drive efficiencies, reduce their costs and increase profits.
Q4: The group is really heavyweight on retail and management consulting on the Board. How are you using this to your advantage?
A: Yes, you’re right. We do have a heavyweight Board, and they help in many ways. The things that come to mind are they share insights as to what they see in the retail sector to help shape strategy. They critique and they validate our strategic positioning in the market.
But I think most importantly is their connectivity, it’s their ability to open up conversations with retailers that ordinarily would be difficult for a small company to access.
Q5: Finally, what can investors expect from itim Group in the rest of the year?
A5: I think more of the same, really. It’s basically building on the success of 2024. What we’re seeing is more retailers approaching us, wanting to cut costs and drive efficiencies to maximise their own performance and modernise their business.
Right now, we have the strongest pipeline that we have ever had but what we are seeing is delays in starting projects as retailers conserve cash until they can see the full impacts of the cost pressures they are facing.
I’m cautiously optimistic for 2025.
