2.6 Financial affairs

Key Figures

• 1The figures for 2022 have been adjusted as a result of the deconsolidation of Nedap Beveiligingstechniek B.V.
• 2Defined as operating profit expressed as a percentage of revenue.
• 3ROIC represents operating profit divided by the invested capital (fixed assets + net working capital).

Revenue

Revenue for 2023 amounted to €262.4 million, which was 14% higher than in 2022 (€229.5 million). Recurring revenue rose by 19% to €84.1 million (€70.6 million in 2022), comprising 32% of revenue (31% in 2022). All key markets and other propositions contributed to this growth. In the Livestock Management, Retail and Security Management key markets, as well as the Light Controls proposition, supply capacity was increased during the year in cooperation with partners. As a result, delivery backlogs accumulated in the previous year were cleared. This led to a catch-up effect in the first three quarters of the year.

Added value was up from €153.6 million in 2022 to €181.0 million in 2023. As a percentage of revenue, added value increased to 69% (2022: 67%). Alongside a positive effect on added value due to the increase in recurring revenue, the margin on product deliveries increased. In 2023, sales prices were more in line with the higher cost prices, which arose due to supply chain disruptions. Furthermore, there was a positive mix effect as a result of scaling down propositions with a lower added value. Positive effects on added value were partly offset by non-recurring costs for the write-down of inventories for propositions being scaled down. These amounted to €0.8 million in 2023. Our added value per FTE rose from €186,000 in 2022 to €198,000 in 2023.

Costs

Employee costs rose by 23% from €91.5 million in 2022 to €112.1 million in 2023. This increase was caused by several factors. Firstly, it was largely driven by the increase in the number of employees. In line with the long-term strategy, targeted efforts have gone into enhancing the strength of scale propositions in our key markets. The number of FTEs increased from 866 at the end of 2022 to 964 at the end of 2023. Secondly, overall salaries per FTE have gone up mainly driven by an agreed indexation of 6% with the effect from 1st of April. Thirdly, temporary staff costs have increased, mainly due to the temporary deployment of additional capacity for catching up on delivery backlogs. Fourthly, the costs arising from employee participation plans increased due to an increase in the operating result. Finally, an amount of €0.8 million has been recognised as non-recurring costs related to propositions being scaled down.

Other operating costs rose from €28.9 million in 2022 to €31.5 million in 2023. General and administrative expenses have gone up, largely in line with the increase in the number of FTEs. Marketing and sales costs decreased from the relatively high level in 2022 that was influenced by non-recurring costs due to the volatile supply chain, among other factors. The 2023 cost level was largely at the same level as in the pre-COVID years. The impact of foreign exchange differences amounted to €0.6 million in 2023, up from 2022 (€0.3 million).

Investments in research and development totalled €46.9 million, representing 18% of revenue, whereby €1.6 million was capitalised (€40.4 million in 2022, i.e. 18% of revenue, with €1.5 million capitalised). These costs mostly relate to maintaining and further developing current products and services. The remaining costs are for research and development in relation to new products or services.

Amortisation and depreciation

Depreciation increased from €8.8 million in 2022 to €9.7 million in 2023 due to investments in our campus at the head office in Groenlo. Amortisation amounted to €0.4 million, down on 2022 (€0.8 million). In 2023, Nedap acquired the GP information system MediKIT. The purchase price will be amortised from the time the asset is ready for its intended use. No costs were yet recognised under amortisation in 2023.

Operating profit

Operating profit (EBIT) for 2023 came in at €27.3 million, compared with €23.5 million in 2022. The operating margin, i.e. the operating profit as a percentage of revenue, amounted to 10.4% in 2023 (10.3% in 2022). This increase is a result of increased revenue and added value, which is partly flattened by an increase in operating expenses. Operating profit in 2023 was affected by non-recurring items due to the scaling down of propositions and occurred mainly in the second half-year.

Financing costs

Net financing costs increased to €0.7 million in 2023 (€0.3 million in 2022) due to increased market interest rates. These are mainly the financing costs on the standby roll-over loan.

Taxation

Taxation over 2023 totalled €5.0 million (€4.7 million in 2022), while the effective tax rate came in at 19.0% for 2023 (20.3% in 2022). The lower effective tax rate is mainly driven by greater benefits ensuing from application of the Innovation Box tax regime combined with a relatively lower share in the profit of subsidiaries in countries with a higher nominal tax rate.

Profit for the financial year

The profit posted for the 2023 financial year came in at €21.6 million, compared to the €18.7 million posted in 2022.

Earnings per share and dividend

Earnings per share increased from €2.87 in 2022 to €3.31 in 2023. The average number of outstanding shares in 2023 was 6,546,636 (6,512,369 in 2022). This increase is the result of the delivery of shares held by the company itself to cover employee participation plans.

A dividend of €3.20 will be paid for 2023 (€3.00 in 2022).

Financial position

The balance sheet total increased from €134.7 million as at 31 December 2022 to €139.9 million as at 31 December 2023. Trade and other receivables decreased from the relatively high level in 2022, in combination with a reduction in the effective credit term for debtors. In addition, returned prepayments from strategic suppliers had a positive impact on working capital. Inventories increased from €28.3 million in 2022 to €38.9 million in 2023. Our partners’ capacity constraints in commissioning projects, combined with softening market conditions, resulted in decreased demand for some products. Consequently, as our delivery capacity expanded, we had to slow down the supply chain towards the year's end, resulting in increased inventory levels. Taxes and social security contributions showed an increase, following a relatively low amount of VAT payable in 2022. The slowdown of the supply chain resulted in a decrease in trade and other payables.

The net debt position amounted to €3.8 million as at 31 December 2023, compared with a surplus of €3.4 million as at 31 December 2022. Cash and cash equivalents decreased from €17.5 million as at 31 December 2022 to €10.2 million as at 31 December 2023, largely driven by the dividend payment, increased inventories and the acquisition of MediKIT during the financial year. Net debt/EBITDA stood at 0.1 on 31 December 2023 (-0.1 on 31 December 2022). Solvency stood at 61% on 31 December 2023 (60% in 2022).

An amount of €14.0 million has been drawn on the credit facilities totalling €39.0 million available on 31 December 2023.

Cash flow

2023 saw the net working capital increase to €35.0 million (€32.0 million in 2022). This increase is largely due to increased inventories and is partly offset by a decrease in trade and other receivables. Operating cash flow amounted to €29.8 million in 2023, an increase compared to the operating cash flow in 2022 (€17.7 million).

Return on invested capital

The return on invested capital (ROIC) rose to 31% in 2023 (2022: 30%) as a result of the increase in operating profit, which was partly levelled off by the acquisition of MediKIT and the increase in working capital.