2.1 Progress on our strategy
We benefited greatly from the decision to have our strategy be developed and implemented in parallel. In 2023, we both augmented and sharpened our strategy in several aspects, while also making good progress with its implementation.
In the preceding financial year, we introduced a 'key markets' approach within the organisation as part of the Step Up! strategy. A key market fits Nedap in terms of structure, dynamics and size. Moreover, there should be a clear path to market leadership and the prospect of attractive financial results. The Step Up! strategy is aimed at increasingly concentrating investments in product development and commercial strength in the four key markets. We reconsider activities that do not focus on a key market, adapting our approach based on what is most appropriate and financially beneficial in each case, taking into account the interests of our stakeholders.
A markets and propositions team was set up to support and facilitate the strategic process for our key markets.
Focus on key markets
In 2023, 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. In our key market Healthcare, we've expanded our market presence by acquiring MediKIT, a general practitioner information system, opening up a new sector for Nedap in this market. For the Identification Systems and Light Controls business units, we are implementing a clear strategic direction with the aim to improve operating margins.
These strategic choices within our proposition portfolio result in a significant reduction in the fragmentation and complexity of the proposition portfolio and are starting to have greater impact on the speed at which the organisation develops.
By deploying more development and commercial capacity for selected scale propositions and markets, our competitive strength has increased. We have managed to further expand our leading positions in the four key markets supporting our growth ambition.
Clear choices and focus
After careful research, we decided to scale down our activities in the pig sector. This scale-down is now largely complete, and the Livestock Management business unit can fully focus on the growth opportunities in the dairy sector.
In the previous year we were investigating whether the market we target with the Flux proposition met our requirements for a key market. This year, we concluded that this is not the case. This has led to the decision to reduce our investments in the Flux proposition. We remain in contact with our partners and end customers about how we can best fulfil our obligations.
As of 31 May 2023, we have sold the activities of Nedap Beveiligingstechniek B.V. to Solid Systems Group B.V., a system integrator in the Retail market. Following the sale of Nsecure in 2017 and Nedap France in 2019, this completes the wind-down of our subsidiaries' activities in system integration and maintenance.
These portfolio decisions are based on many considerations. We have learned over the past decades that success is only possible when a team fully commits to the success of a proposition. When things are tough, everyone on the team is expected to show commitment and perseverance. It takes a lot from the team to ask at the right moment whether shifting all the efforts to another market would not produce much greater results. To ensure that this happens, we have fixed moments in the year as part of the Strategic Calendar when such questions are asked.
When the decision is made to reprioritise an activity, we strive to relocate the employees involved within the Nedap organisation. We have seen that these colleagues can add more value to key market propositions with their experience and skills.
AI and Step Up!
2023 was the year when ChatGPT, a new variant of AI, became widely available. The immense speed at which technological breakthroughs are now becoming available and new fields of application are being opened up, underscores the disruptive power of AI. In our key markets, this may lead to fundamental paradigm shifts that are not yet foreseeable. Moreover, it will greatly influence how we organise our administrative, operational, commercial, and development processes. The dynamic approach of the Step Up! strategy now proves to be very useful. We will continuously review and, if necessary, adjust our strategies for each key market and for Nedap as a whole in light of these new developments.
It is therefore essential that we closely follow developments in this field and promote the adoption of this new technology within Nedap. To this end, the Nedap AI task force was established at the beginning of 2023. The first decision of this task force was to provide all Nedap employees with access to ChatGPT. At the same time, there is a strong focus on creating awareness of the risks in the areas of information security and privacy. We have already established relationships with leading parties in this field (OpenAI, Silo.AI) and concluded agreements aimed at protecting information and defining responsibilities in collaboration. Through the Nedap AI event in June 2023 and other channels, experiences gained within Nedap are quickly shared. The task force is an example of how we use collective knowledge to accelerate activities in the different parts of Nedap.
The emergence of AI applications will create growth opportunities for Nedap. These are the circumstances in which we as Nedap can excel. This is due to the quality and drive of our people combined with a culture where curiosity and entrepreneurship are combined with a great sense of personal responsibility. With leadership that realises that eliminating all risks also eliminates all opportunities. We are therefore convinced that we are well positioned to take advantage of the new opportunities and possibilities that arise and contribute to Nedap's growth.
Progress on financial targets
The Step Up! strategic plan sets the following financial targets towards 2025:
Revenue that develops towards annual high-single-digit autonomous growth. In 2023, revenue was up 14% on 2022. All key markets and other propositions contributed to this growth.
An operating margin, excluding one-off items, that rises towards 15%. In 2023, the operating margin came in at 10.4%, compared to 10.3% in 2022. 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.
Return on invested capital (ROIC) that outgrows profitability. ROIC was 31% in 2023, which is higher than in 2022 (30%). This is a result of an increase in operating profit which was partly levelled off by the acquisition of MediKIT and an increase in working capital.