Yesterday, Nedap published its FY2024 numbers, and these are some of my thoughts:

1. A total revenue decline of -4% (-2% if you account for the divested segments) for the full year still implies around 7% revenue growth in Q4—an improvement that aligns with the recovery of the production climate in the Netherlands. However, this follows a -5% comparison base in Q4 2023, so in absolute terms, revenue performance still isn’t great, even though the outlook is improving. This is one of those moments where you see how relatively weak businesses (like Nedap's non-recurring revenue) can quickly become a drag. Fortunately, my investment case does not rely on exceptional revenue growth.

2. Recurring revenue is up 19% again in 2024, just like in 2023, which is solid and should ultimately drive revenue growth. A CAGR of 17-18% since 2019 is quite strong. If you’re looking for a decent investment return with Nedap, you’d need ~7% average revenue growth over the next five years. If recurring revenue eventually exceeds 50% of total revenue (currently 40%), you’d already be at 7.5% total revenue growth with 15% recurring revenue growth and non-recurring revenue remaining flat (though even that is proving tougher than expected). That should be achievable. Revenue growth needs to come from this segment, considering that from 2011-2021, overall revenue growth was only ~3% (and even that included some recurring revenue growth since 2019). To hit 7% purely from recurring revenue, growth in that segment likely needs to be around 11-14% over the next five years, depending on the recurring vs. non-recurring revenue mix. That seems feasible, given the 17-18% CAGR over the past five years and the fact that many of Nedap’s SaaS propositions are still in their early stages and should hopefully contribute to this growth.

3. The EBIT margin improved to 10.5% in H2 2024, but moving forward, we need to see further improvement with revenue growth and stable/lower/slower-growing costs. However, there is some frustration here—it has felt like a constant case of "we really need to see improvement," haha. But for now, I think the shortcomings are still somewhat justifiable, and I remain optimistic for a strong 2025 and beyond.

4. They have managed costs reasonably well, though in a year like this, you’d expect (or hope) costs to decrease rather than increase by 2% when revenue is also declining. But their whole narrative of “preparing for more growth with a larger workforce” means those costs are somewhat locked in. That being said, next year, we should really see this reflected in the numbers.

5. Dividend remains unchanged. In my analysis, I had assumed this wouldn’t be the case since they’d need to take on debt to maintain it, but it now seems the dividend was paid from their cash position (which dropped from €10M to €4M) along with €14M in FCF = €20M, which roughly covers the €21M dividend payout. And of course, I can justify anything—one could argue, “Well, they should be generating enough profit in the coming years to sustain this dividend.” Their debt ratios are fine (0.3x net debt-to-EBITDA), so they can afford to keep it stable to avoid spooking (senior, dividend-collecting) shareholders. Still, the “pleasing mentality” is a bit irritating. On the other hand, if they truly don’t need that cash for internal investments, it makes sense to return it. In fact, it’s even quite commendable that the company chooses to return it rather than blindly throwing it at new projects.

6. Regarding my previous point about the dividend, I’d love to see management conduct a tender offer to buy back a significant portion of their own shares. Given their clean debt ratios, they could even finance it with an additional loan. In the past, Nedap was highly cyclical, making it wise to maintain a conservative balance sheet. However, the company is now much more stable and could easily execute such a move. At the current valuation, this would be an attractive deal—not just for shareholders but also for employees, as nearly all of them are shareholders as well.

7. Not much new regarding the market groups—Healthcare and Retail performed well, and you can see management really executing on their transition toward SaaS solutions across all market segments, which is nice to see. However, Livestock (and Security) appear to have taken a significant hit. At this point, you’d want to compare it to 2022. I understand that 2023 saw higher demand due to post-shortage recovery, but it’s unclear whether 2024 is actually higher than 2022 since they don’t provide those figures, which is frustrating.

8. A new Supervisory Board member with a financial background—could be useful in guiding the new CFO a bit.

9. Net profit declined ~14% YoY (slightly lower revenue growth combined with slightly higher costs—a double hit leading to a 14% drop). However, operating cash flow remained stable despite this profit decline, allowing them to maintain the dividend. How? Mainly due to a much more favorable inventory position: +€7M in 2024 vs. -€11M in 2023, meaning they likely reduced inventory, freeing up cash. On the one hand, this is fine because lowering inventory improves cash flow (creating room to maintain the dividend). On the other hand, it’s concerning because the reduction stems from lower sales rather than efficient inventory management, which could indicate declining product demand (which we’ve clearly seen). In any case, it helped them this year, even if offloading inventory without converting it into strong sales revenue isn’t exactly ideal.