Message from the CEO
In a world where the pace of change has never been faster, 2023 stood out as a year of dynamism for Nedap. From geopolitical shifts and economic fluctuations to the rapid evolution of technology, the landscape in which we operate has been challenging, but offered also new opportunities. The resilience and adaptability of our teams, coupled with the strategic agility embedded in our Step Up! strategy, allowed us to further the development of Nedap in 2023. Revenue grew autonomously by 14%. Our recurring revenue increased by 19% and now accounts for 32% of total revenue. At the same time, substantial progress was made in developing and implementing the Step Up! strategy.
Supply Chain
The year 2023 continued the trend of much volatility in the supply chain. After experiencing disruptions with component suppliers in 2021, the core of these challenges shifted to our production partners in 2022. Thanks to the concerted efforts of all parties involved, we managed to significantly increase our product deliveries at the beginning of 2023, successfully catching up on delivery backlogs. This led to a 20% increase in revenue in the first three quarters of the year.
However, this strong growth in our deliveries led to our partners and customers reaching capacity limits in installing and commissioning projects with our solutions. Moreover, softening of market conditions towards the end of 2023 led to a softened demand for some of our products. As a result, our customers adjusted their order levels downward. Therefore, just as our delivery capacity had significantly expanded, we were required to take measures to slow down the supply chain at the end of the year.
Step Up!
Despite operational challenges, good progress was made with the Step Up! strategy. We benefited from the decision to have our strategy developed and implemented in parallel. This balanced approach enhances our agility and ensures we do not lose sight of our long-term strategic direction within a highly dynamic market.
Over the past year, we further refined and enriched our strategic plans. For each of the four key markets (Healthcare, Livestock Management, Retail and Security Management), strategic plans and objectives have been formulated and shared within the company. Also, in our Identification Systems and Light Controls business units, we are implementing a clear strategic direction with the aim to improve operating margins. We completely phased out activities in the pig sector in the financial year. As regards the Flux proposition at Staffing Solutions, it has been decided to reduce investments in line with the commercial opportunities. The acquisition of MediKIT, a general practitioner information system, opened up a new sector for Nedap in the Dutch healthcare market, introducing new growth opportunities in this key market.
We continued investing in our scale propositions, a strategic choice reflecting our commitment to long-term growth and market leadership. This focused investment in combination with the costs associated with scaling down non strategic activities has put pressure on our EBIT margin in the short term, but are starting to have a greater effect on the speed at which the organisation develops. We are confident that this strategic focus within our proposition portfolio will not only enhance our market position, but also deliver long-term value to our stakeholders.
By deploying more development and commercial capacity for selected propositions and markets, our competitive strength has increased and we managed to further expand our positions in the four key markets in 2023. We are therefore well positioned to make the most of the growth opportunities in these markets in the coming years.
One Nedap
We are increasingly successful in combining the entrepreneurship and market orientation of the business units with the execution power of the entire Nedap organisation. Nedap-wide knowledge, experience, and insights are better utilised in designing and selling propositions. This accelerates development processes and improves the quality and customer value of our solutions.
Important topics like cyber security, new sustainability legislation, SaaS as a platform and people development are now being addressed Nedap-wide. We have made significant progress in ensuring that the Nedap perspective is leading and that these themes are no longer considered only in the context of the individual business units. This approach embraces market focus and entrepreneurial spirit, while leveraging the collective strength of the entire Nedap organisation.
Rise of AI
The introduction of ChatGPT marked a milestone in the development of artificial intelligence. The emergence of this technology will have a major impact on the markets in which we operate, on our supply chain, and certainly on our own Nedap organisation and processes. This paradigm shift will create new market opportunities and at the same time be accompanied by new risks. We therefore decided in March 2023 to make this theme a focus area within Nedap and to set up the AI task force.
The AI task force aims to facilitate the adoption of AI within Nedap and build close ties with leading parties in this field. At the same time, legal and ethical aspects of using this technology are incorporated into Nedap-wide guidelines and supporting agreements. New insights and experiences gained are rapidly shared within the organisation. This is a striking example of how we combine the entrepreneurship of teams with the execution power of the entire Nedap organisation. Meanwhile, many Nedap employees have already gained practical experience of applying AI in their daily activities. Nedap is therefore well positioned to benefit from the opportunities that will arise from this.
Sustainability
In the financial year, further work was done on our sustainability plans. Nedap has always made decisions with a long-term perspective, making sustainability implicit part of our decision making. In 2021, we articulated our view on sustainability in an inspiring policy, fitting with the Nedap culture. Steps have been taken to translate the policy into concrete initiatives, including clear progress indicators and objectives. Throughout the year, attention was regularly paid to sustainability in several ways such as the Sustainability Week in October 2023, a Step Up! day focused on this theme and dedicated posts from management. This ensured that sustainability became more explicitly an integral part of our strategy and daily actions.
Current and upcoming legislation in this area requires significant effort from the organisation. A Nedap team has taken on this challenge and has quickly built up a lot of knowledge of CSRD. By applying our understanding of CSRD, we see an opportunity to embrace the upcoming CSRD and the sustainable reporting standards to make explicit what has always been important to Nedap.
Employees
In 2023, while addressing operational challenges, we designed and implemented extensive organisational changes. Great demands were placed on the expertise and experience of all of us, while at the same time we understood the need to acquire new knowledge and skills. With every success achieved, everyone realised that the bar was raised again. This year proved again that, driven by their sense of responsibility and decisiveness, Nedap employees truly excel in these circumstances.
I would like to thank all my colleagues for their commitment and perseverance over the past year. Together, they form Nedap and I feel privileged to be part of this team. Also, I would like to express my gratitude to our customers, partners and shareholders for putting their trust in Nedap.
Outlook
With our increased competitive strength, we have further expanded our leading positions in the four key markets and unlocked new growth opportunities. For 2024, unforeseen events notwithstanding, we anticipate further revenue growth for the full year, whereby we expect that this growth will take place in the second half of the year. We reiterate our Step Up! financial ambitions, including an EBIT margin growing towards 15%, albeit with a potential one-year delay due to market volatility affecting revenue development in the short term.
Ruben Wegman, CEO
21 February 2024
