SDI Limited (SDI.AX) Earnings Call Transcript & Summary

Good afternoon. I'm Jeffery Cheetham, Chairman of the Board of Directors of SDI Limited. Ladies and gentlemen, it's now over 2:30 p.m. and being a quorum present at this virtual meeting, I declare the 2025 AGM of SDI limited open. As the meeting is being conducted entirely online this year, I want to cover some important procedural or technical matters. These are the details about how shareholders can participate, have been set out in the Notice of Meeting and online virtual meeting guide, which has been made available to you. Both documents are also available to view and download at the bottom of your screen. If you haven't already done so, you may find it helpful to download the online guide and keep it handy. Voting in today's virtual meeting will be conducted by a poll by virtue of the virtual voting platform. All polls will remain open until the consolidation of today's meeting. As we move through the items of business, I'll respond to questions from the shareholders. To register to vote and get a voting card, click on the Get the Voting Card box at the top of your screen, enter your shareholder number and post code or country if outside Australia. To vote click for the for, against or abstain voting buttons for the relevant items. Once you have completed your card, click on the Submit Vote button, you may edit your voting card as many times as you would like during the course of the meeting. Shareholders can submit written questions at any time by clicking on the Ask a Question box, which is also at the topic of your screen. Shareholders, if you do have questions, I encourage you to submit them as soon as possible. If we experience any technical issue during the meeting, we may need to take a short break. If there is a significant technological issue, and we may need to adjourn the meeting to another time and date. Please keep an eye open on your e-mail box and our AGM website for updates and further details. We'll also lodge details with the ASX. I'd like to introduce my fellow directors. Ms. Samantha Cheetham is our Managing Director and CEO; Mr. John Slaviero, Director of Finance, COO and Company's Secretary and our Nonexecutive Directors, Dr. Geoffrey Knight, Mr. Gerald Bullon, Mr. Cameron Allen and Mr. Gerald Kennedy. Also our present is Ms. Rachel Smith from the auditors company -- is from the company's auditor Deloitte. Ms. Smith will be available to answer questions you may have about the conduct of the audit. The Chairman and the CEO's speeches have been released to the market this morning. You'll be able to follow the presentation on the webcast as the presenters speak. I'll now commence my Chairman's address. The 2025 financial year presented to us with challenges with continued changes in the European market registration requirement, instability in some Middle Eastern markets and underperforming Asian markets. Despite this, product margins increased and operating expenses were well managed, giving us solid normalized after tax profit of $10.5 billion, which was up 0.1% on last year. Our sales of $10.4 million were led by growth in Aesthetics products, improvement in Whitening products and strong growth in the European market. The ongoing focus on Aesthetics and Whiting products continues to be our strategy for the future direction of our portfolio. We continued to see declining sales of Amalgam products, which were offset by other products and in particular, our newest product Stela. Stela, our exciting amalgam and restorative replacement, was released in most of the key markets during the year, showing good sales growth and positive market feedback. The new European Union Medical Device Regulation, the MDR, continues to be a major emphasis for our teams, and they have secured the registration. As a consequence, much of our research and development resources have been allocated to achieve registration for our legacy products. However, we still aim to release one to two new products each year. Globally, product registration is becoming more difficult to achieve but SDI is well equipped to sell all products in all major markets around the world. Our planned near 6,500 square meter factory in Montrose is an exciting project, which will increase production capacity and efficiency. We expect construction to commence in early 2026 and move our manufacturing plant in 2027. In the 2026 financial year, we will continue to focus on changing our Amalgam customers to Stela, the building of our new manufacturing plant and ensuring our MDR registry is fully complied with. These are great goals for the year to ensure the company is well placed to achieve increased market share for the future. Additionally, we believe in management our environmental, social and governance risk position for sustainable growth at both the corporate and product level. While these factors have always been a focus for SDI, we are continuing to follow our ESG roadmap, which is in line with our overarching corporate synergy. I'd like to thank the Board, management and the staff of SDI and our distributors, both in Australia and all over the world for their hard work and total dedication to SDI's global success. Lastly, I'd like to thank our shareholders for their ongoing support and investment in SDI. I'll now hand over to the CEO Samantha Cheetham.

Next slide. everybody, Slide 5. Thank you very much, Jeff, and good afternoon, everyone. I, too, would like to thank all attendees for joining us today at the Annual General Meeting for 2025. I'm very pleased with the progress we have made, delivering world-class products into a highly competitive market and gaining market share. Our winning strategy is underpinned by the reliable supply of high-quality dental products to our customers. In the FY 2025 sales -- in the FY '25 year, sales were $110.4 million or down 0.7% on FY '24. With product margins increasing and well-managed operating expenses have resulted in a record profit for the year. I'd like to thank the entire SDI team and our customers and suppliers, both in Australia and all over the world for their hard work throughout the year. delivering a good result and continuing to maintain a high level of energy as we enter the next financial year of 2026. We have delivered on our FY '25 objectives and continue to focus on our winning strategy. I'd also like to thank our loyal shareholders for your ongoing support and investment in SDI. Next slide, Slide 6. FY '25 saw sales of $110.4 million for the group, down 0.7% on the prior corresponding period. Gross profit margin increased 80 basis points to 62.9% due to stronger performances in our higher-margin products as well as a stronger regional mix and increased efficiencies across production. EBITDA fell by 2.7% to $21.6 million on the prior corresponding period, with operating expenses well managed in the period. A final dividend of $0.019 per share was in line with the prior corresponding period with normalized net profit after tax of $10.5 million. an increase of 0.1% on the prior corresponding period. In terms of our business updates, revenues were flat with a mix of regional performances. The gross margin improvement of 80 basis points was largely attributable to product mix and increased efficiencies in production. And as we move into FY '26, we expect this trend to continue with the new machines becoming fully operational. During the second half of the year, Pola tooth whitening product range undertook a branding upgrade and was well received in the market. Stela, a posterior restorative product that forms part of our aesthetic product range continues to reach broader acceptance in the market with continuing strong take-up. Finally, we have made significant progress on our Montrose site relocation with the permit process, the last step before we begin construction. Let's now turn to sales by the business units. Next slide, Slide 7. This slide shows sales by business units. During the year, we saw good growth in Europe but was offset by weaker direct exports. The Australian unit sales, which also captures the Australian direct export markets, was down 10.5% with Australian direct exports decreasing 15.3% when adjusted for currency movements. These sales were materially impacted by a reduction in sales from the Middle East and Asian regions. The North American market was down 3% in local currency, primarily due to a 16.6% decline in Amalgam sales in the region. The European unit sales were up 5.8% in local currencies, driven by demand for aesthetic products in most European markets. Brazilian sales increased 9.7% in local currencies due to a major distributor returning to normal business after reducing inventory in the prior period. Now on to our sales by region. Next slide, Slide 8. This slide details our sales by category. In local currency, Aesthetics sales continued to show solid growth of 4% in local currency terms with growth across most regions, partly offset by a decline in Australian direct export sales, which were down 10.2%. Whitening product sales were up 2% in local currency terms with good increases in North America and the Australian domestic market. Equipment, which is largely a complementary product and represents our smallest product category, was down 2.2%. However, Brazil and Europe saw a good growth with 4.4% and 18.3%, respectively. Finally, Amalgam sales continued recent declines falling a further 21.9% in local currency terms. The declines were in most markets, particularly in North America, which was down 16.6% over the year. In local currencies, aesthetic sales continued to show solid growth of 4.5% for the year, with growth in aesthetics largely driven by market share gains, supported by the release of new products in prior periods gaining momentum. Next slide, Slide 9. Project Montrose. The tendering process began, and we have received construction tenders for around $26 million. The next stage will be the due diligence on the preferred tender. The planning permit for our project has been well received. As recently shared, the project will be funded -- fully funded by the combination of the sale and leaseback of the current premises plus debt. We're excited about the project, including the capacity it will add and the efficiencies it will generate for the business. Next slide, Slide 10. Here, we see the normal -- the approximate updated time line of Project Montrose. We are currently still on track to be relocated by December 2027. Next slide, Slide 11. Over the past year, we have continued delivering our ESG road map while also preparing for the new Australian sustainability reporting standards. For SDI being a Group III reporting entity means that by FY '28, we will publish a sustainability report integrated with our financial results, covering climate-related risks and opportunities that could reasonably be expected to materially affect the company's financial position as well as how our governance, strategy, risk management and metrics and targets will be used to monitor and manage them. ESG has always been part of how we run the business, both in our operations and in our products. And we are ensuring this approach positions us well for the future and for meeting these new requirements. We look forward to continuing to share our ESG journey and progress with you. Next slide, Slide 11. And here on Slide 12, somehow, Slide 12 is our priorities. Priority one, high leading -- high-quality market-leading products, priority two; business excellence; and priority three, premium positioning and awareness. And our company continues to follow that strategy, and our whole team is committed to it. Slide 13, strategy and outlook. The company's strategic priorities remain unchanged. Aesthetics and Whitening continue to be our focus for new product development. Stela and Riva Cem Automix were the latest product launches, and I look forward to updating you all throughout the year of the positive progress of these products, particularly Stela, given its unique characteristics. We continue to focus on improving operational manufacturing efficiencies via automation and Project Montrose expanding our sales capacity to over $200 million. The R&D team will remain focused on product development with the aim to have one to two products released to market over the next 12 months. We attended the International Dental Show in Germany. It was a great success as we were able to showcase some of our new and most innovative products. Slide 14, our awards. SDI is committed to product innovation. Our strategic goal to launch at least one to two new products per year is contributing to our key focus categories of aesthetics and tooth whitening. SDI products are recognized around the world for their exceptional quality and innovation. Each year, we continue to earn an increasing number of industry awards, reflecting our commitment to excellence and our ongoing drive to help pioneering solutions. We're a dedicated exporter, proudly receiving the 2025 International Health Victorian Export Award, adding to our list of awards in prior years. These achievements highlight our strong global presence and our ongoing commitment to delivering exceptional products to international markets. That concludes my presentation. Back to you, Chairman. Next slide, Slide 15.

Thank you, Sam. We'll now turn to the formal business of this meeting. The Notice of Meeting dated October 24, 2025 was circulated to members, and I will take the Notice of Meeting as being read. Turn to Slide 16, please. The 2025 annual report contains the financial report, the directors' report and the independent auditor's report. A copy of the annual report was made available on the company's website and was sent to those directors who requested it. The financial statements have been approved by the directors and audited by Deloitte. Please ask any questions that you have on our auditor on the virtual meeting platform. Voting is not required. This is a discussion item only. Are there any written questions on SDI's limited -- SDI Limited's financial statement report, director's report or the auditor's report?

There are no questions.

Thank you. Are there any further written questions?

No, Mr. Chairman, there are no written questions.

Are there any further phone questions?

Chair, there are no questions from the phone.

With no further questions, I'll move to the next item of business, which is the election of directors. Slide 17. It's the election of Gerald Bullon. The resolution is for the election of -- reelection of Mr. Gerald Bullon as a Director of this company. The directors, with Mr. Bullon abstaining, unanimously recommend shareholders vote in favor of the reelection of Mr. Bullon as a Director of SDI Limited.

Are there any written questions on this item, please?

Yes, Mr. Chairman, we have one question from a shareholder. The question is, how old is Gerald Bullon? And is he planning to serve a full 3-year term? Having first joined the Board in 2013, is it fair to assume that this will be his last term or could Mr. Bullon renominate for another 3-year term in 2028?

I will ask Mr. Slaviero to answer that question.

Well, it's really a question to the Board and to the Chairman. So no, I think it's a discussion between the Board and the Chairman [indiscernible].

Thank you, Mr. Slaviero. I find Mr. Bullon is an excellent Director for the company and a great person to discuss the matters of the company. So I will fully endorse his reelection. Any further questions, please?

There's no more further questions.

No more further questions. With no further questions, the details of the total valid proxies of this item -- for this item are displayed. I'll be casting the undirected proxies given to me as Chair of the meeting in favor of the resolution. I'll now move to the next item of business. which is Resolution 2, the reelection of Dr. Geoffrey Knight as a Director. This resolution for the reelection of Dr. Geoffrey Knight as a Director. The directors, with Dr. Knight abstaining, unanimously recommended shareholders vote in favor of the reelections for Dr. Knight as Director of SDI Limited.

Is there any further -- any written questions on the item?

Yes, Mr. Chairman, we have one written question from a shareholder. How many more years is Dr. Geoffrey Knight likely to serve on this Board having joined -- first joined the Board in 2013. Conventional governance would see Dr. Knight retiring after 12 years of service at today's AGM. Is he planning to serve a full 3-year term and could Dr. Knight and the Chair please outline their approach to Board renewal and comment as to whether any new directors with a fresh perspective will be added to the Board before the next AGM?

Thank you. My response is that Dr. Knight has been an enormous contributor to SDI and to the management of the company. And as for how long he will stay on as a Director, I think it's up to Dr. Knight. Does that answer your question? Thank you very much. There's no further questions for the item. No further questions.

No, no further questions.

I'll be casting the undirected proxies given to me as Chair in the favor of the resolution. I'll now move to the next item of business, remuneration report. Are there any written questions on this remuneration report?

No, Mr. Chairman, there are no written questions.

Okay. With no further questions, the details of the total valid proxies for this item are displayed. I'll be casting the undirected proxies given to me as Chair of the meeting in favor of Resolution 3. The directors recommend shareholders to vote in favor of this resolution.

Are there any written questions on this item?

Yes, I have some other questions, Mr. Chairman. I have a question from [ Andrew Tan ]. Can you please provide an update on the general trading conditions across each of the product segments and geographies for the year-to-date? Has the implementation of your new production machine resulted in margin improvements in the year-to-date? Is the Stela product accelerating in gaining market acceptance? Thank you.

In terms of year-to-date update, we, at this time, don't really give updates, Andrew. It's the way we've sort of done it in the past. In terms of the machinery efficiencies and contribution to the margin, they certainly are. They're not contributing huge amounts yet, but as it moves through the production lines, they certainly will -- I think there'll be certainly improvements by the end of the year. Apologies. Stela is definitely gaining market share -- sorry, market acceptance. We have key opinion leaders in many, many countries talking about it. They recognize the innovation and the opportunities for -- as a posterior tooth filling plus the -- for the size teeth as well, and is a super strong product that will last a long time. So our sales of that is certainly increasing all the time. So very, very pleased with the results. So thanks, Andrew, for your questions.

Thank you, Samantha. Are there any further written questions?

Yes, I have a further written question from Peter Stora, shareholder. What percentage of revenue do you expect to allocate R&D in the next 2 years?

R&D, we don't really look at it like that. It's fixed cost. So it has increased a bit, a significant amount in the last financial year due to the European registration costs. But generally, it's quite fixed cost. So it doesn't vary hugely as what you've seen in the financials because all our scientists and are all full-time employees. We don't push -- increase employees just for a project. They all work on -- they're all experienced scientists and chemists. So they're all been here quite a while. So it's more or less I'd say is a fixed cost.

Thank you, Mr. Slaviero. Are there any further questions?

Yes, Mr. Chairman, I have another question from Stephen Mayne. At last year's AGM, I pointed out that Deloitte have been our external auditor for more than 20 years. and asked about audit tender history. The Chair, Mr. Cheetham refused to provide any detail and said this was a matter for the Board. Could the Chair and the Audit Committee Chair please comment on whether last year's AGM exchange prompted any discussion about the merits of conducting a competitive tender for the audit? Once again, I ask when was the external audit last tendered? And when is this next likely to be tendered?

Yes. I can answer that on behalf of the Chair of the Audit Committee. We didn't go out to tender last financial year. We had quite a bit on our plate. So there wasn't time. But certainly, I believe, and that is an Audit Committee decision, that this may well happen in the next financial year in 2026.

Are there any further written questions?

Yes, Mr. Chairman, I have another question from Peter Stora. We are now almost 5 months into the first half of '26. Can you can give us an idea of how we are tracking compared to the same period in FY '25 or against the management budget if that is more appropriate?

Peter, no, we don't give out those -- that information until the half year which comes out. I think we give an update -- trading update around January -- first or second week of January. So we will -- not too far away. So hopefully, you can wait until then.

Yes. And can I add just a bit to that, too. And one of the reasons why we do that because normally, we find that our November, our second quarter sales are quite strong. And we have just -- we haven't quite finished November sales figures yet, and December is usually quite strong. So it's a bit -- I would say that we'll see the trend when we've got December sales figures, and then we'll announce in January.

Are there any further written questions?

Yes, Mr. Chairman. We have another question from [ Brett Westbury ], shareholder. I'm sure we all value the collective experience of our Board members. However, it is also healthy to have a regular renewal for fresh ideas and networks. With all Board members having been in place for over 12 years now, has there been any discussions on renewal or Chair succession?

I'll answer that. There has been no serious discussions with renewal. I would add that the existing Board members make very realistic contributions to the future of the company. I refer basically to the contribution from Dr. Knight who was a practicing dentist and who actually contributes to the research and development activities that we do. I'll refer also to Samantha who is very in tune with the market requirements. So there's a constant discussion about the future of the company as far as research and product development is concerned. Thank you. Are there any further questions?

Yes, Mr. Chairman, I have another question from Brett. and he asks could we please hear from Dr. Knight regarding his reelection and his views on the business direction.

Thanks for that question. I feel that SDI is extremely well positioned in the dental market. At the moment, we have a situation in the United States where they're pulling out of the water supply. And so people in Queensland doing the same thing and SDI focus mainly on the product. And that's going to be the future trend of dentistry that at least that people now realize that dental disease is a bacterial disease and SDI has introduced a number of very innovative processes. I think one of the first -- well, the first company in the virtually globally that was able to produce a form of -- a chemical or that would actually but also turns the teeth black. SDI have now got a product, which also but also prevents the teeth from going black so it makes it a much more aesthetic treatment. We've got Stela, which I think is a world-leading situation. Lot of composite resins actually shrink away from the tooth. And therefore, a lot of the technology in the past have been making, the filling material is actually very strongly bond to the tooth surface whereas our Stela product, which is fascinating, that actually sort of moves -- it actually moves the adhesion towards the tooth and so you get a really tight seal. And this is a sort of a world-leading situation that just I think it requires dentists to sort of sit down and just become aware of what's happening. Dental profession is very conservative, and it takes a lot of time and hard work to do that. And I've seen that SDI in a global situation have gone out and they've got key opinion leaders, and we've talked to them. And I'm very excited about the future of SDI and for the products we provide in the market.

Thanks. Dr. Knight. May I quickly add that our competitors are also trying to develop an alternative to Amalgam replacements, and they have not come anything near the properties of our Stela. So we are very, very encouraged by the fact that our research appears to be well ahead of them. Can I ask are there any further written questions?

Yes, Mr. Chairman, I have another question again from Brett Westbury. Could we hear from Mr. Bullon regarding his reelection and his views on the business direction?

Mr. Bullon?

Yes. Well, my early involvement with the company was very much because I've been involved in financial markets and so I was familiar with all the brokers who were covering the stock and all the institutional investors who were interested in health as an area of investment. I continue to have those relationships with the financial markets, but also I've had the pleasure of watching the growth of the company, the growth of these new products and their reach out into the global markets. And I think I'm still in a position to contribute to the Board dynamic and participate in the fairly robust discussions that we have around the Board table.

Thank you, Mr. Bullon. Are there any further written questions?

There are no further written questions.

Thank you very much. As there are no further written questions, I declare the poll for all items will be closed in 5 minutes. [Voting]

A 5 minute countdown is displayed on the top of the virtual meeting screen. The results of the poll will be released to the ASX as soon as possible, which is expected to be later this afternoon. Thank you, ladies and gentlemen, for your participation at today's meeting. I now declare this annual meeting -- general meeting of SDI Limited closed. Thank you very much.