SDI LIMITED — AGM Information 2019

Nov 14, 2019

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FY19 AGM

November 15, 2019 Sage Hotel, Ringwood

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CHAIRMAN’S ADDRESS

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CEO’s
ADDRESS
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Thank you very much Jeff.

I would also like to thank all attendees for joining us here at our Annual General Meeting for 2019.

As part of my presentation I will run through SDI’s financial performance for the year, update you on the momentum we have generated as we navigate through the new financial year, and finish with a recap on our strategy and outlook for the coming year.

Before I launch into my presentation, I want to say that I am proud to stand here before you as CEO of SDI; an Australian manufacturer and employer in the dental industry. As a company, we export to over 100 countries and, since 1972, have been competing on the world stage, standing shoulder to shoulder with the worlds’ largest dental companies.

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FINANCIAL
PERFORMANCE
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Let’s start with a look at the year just completed.

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FY19 HIGHLIGHTS
• Total sales up • Aesthetic sales (42.7%
6.8% to $79.6m of sales) up 11.6% in
• Gross margins local currency
up 2.3% to • Strong cash generation
62.6%, due to and no net debt
the favourable product mix and • Total fully franked
dividends for FY19,
currency
including a special
• EBITDA growth dividend in 1H19,
of 16.7% increased by 48% to
• NPAT up 29.5% 3.7 cents
to $7.3m • EPS increasing to 6.2
cents (up by 1.4c)
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This was a very pleasing result with many of our growth ambitions met over the year and encouragingly we are starting to see genuine operating leverage emerge in our business.

As I will discuss later, we continue to grow faster than the market in many of our leading product categories, following the successful execution of our strategy in new product development and distribution.

Looking at the numbers

Sales grew 6.8% in Australian Dollars to a record $79.6m, EBITDA was up 16.7% to $12.1m and NPAT up 29.5% to $7.3m.

Sales were driven by a strong performance with our Aesthetics products, which represent 42.7% of total sales, up 11.6% for the year in local currency.

Cashflow was once again a feature in this result and there is no net debt

Gross margins were boosted in the period to 62.6%, in part due to the effects of favorable currency, but also due to an improving product mix towards higher margin products.

Finally, dividends for the year were up 48% or 3.7 cents per share, including a special dividend of 1 cent per share in the first half of the financial year

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STRONG FREE CASHFLOW AND NO DEBT
• Strong financial • Free cash to invest in
position enables the business, new
continued to machinery and product
grow in the development.
business
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The company continues to be in a strong financial position, giving us the flexibility to explore a range of opportunities to continue to grow our business.

We generate a significant amount of free cash enabling us to maintain our focus on investing in the business, including new machinery and product development.

We have also stepped up our investment on brand development and new marketing initiatives and I will outline some of these later in the presentation

Let’s now turn to the product categories.

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RESEARCH, INNOVATION, RESULTS

• Continue to invest in • 80% of Intangibles Research and are Aesthetics Development with products, including $2.6m spent in Glass Ionomers and FY19 Composites • Aesthetics and whitening products now represent 70% of all sales

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Research and Development is a key strategic focus for our company and a significant driver of the business; and, here is an update on our product mix as it stands today.

As you can see from this slide, the aesthetic and whitening products now make up 70% of sales, compared to 51% 5 years ago. This is reflective of the success in the research, development and commercialisation of new contemporary dental products which we are now known for today

Over the last year we invested a further $2.6m in Research and Development on new products and expect this level of investment to continue in FY20.

With respect to Research and Development accounted for on the balance sheet shown as intangibles, 80% of this amount relates to aesthetic products. This leading product category in our business, which accounted for 43% of total sales in FY19, includes composites and glass ionomers.

Encouragingly, we continue to see strong growth in these core products, well ahead of market growth rates.

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AESTHETICS GROWTH AHEAD OF MARKET

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• Aesthetics sales • Amalgam sales, Product Category Sales Growth in Local Currency Growth in AUD % of Total AUD Sales
performed strongly, declined 10.1% in Aesthetics 11.6% 16.3% 42.7%
up 11.6% in local local currency, Whitening 3.2% 7.6% 26.9%
currency continuing the
• Whitening sales, trend we have seen in recent EquipmentAmalgam (10.1)%(4.1)% (1.8)%(5.8)% 22.8%7.6%
now 26.9% of total
years
sales, were up
3.2% in local
currency
• Equipment sales,
which are used to
drive other product
sales, were down
4.1% in local
currency
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So what is driving our growth?

This slide breaks down the product categories highlighting the two largest categories, aesthetics and whitening. These categories make up 70% of group sales and in the last year they grew at 11.6% and 3.2% in local currency terms respectively.

The aesthetics category includes composites and glass ionomers, the preferred solution for dentists and their patients today in many countries.

Pola is our successful whitening brand and, in addition to holding a dominant market share in Australia, is growing share in other markets we operate in.

This chart also draws attention to the continued weakness in amalgam, which now makes up 22.8% of group sales

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STRATEGY & OUTLOOK

Strategic priorities/progress:

• Rationalise product portfolio

• Plans to reduce the number of SKUs by 30% on track

• Focus on key product categories – whitening, glass ionomers and composites

• Launched new products at the IDS

• Drive amalgam replacement

• Commonwealth Govt grant $3m awarded in August 2019

• Increase innovation and speed to market

• Investment in new product machinery

• Riva Star research findings compelling

FY20 Plans:

• Complete rationalisation of product portfolio

• Brazil manufacturing started September 2019

• $3m planned investment on further machine automation and product development

• In FY20, we expect continued sales growth in Aesthetics and Whitening products in line with previous years (70% of sales)

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Turning to my final slide on strategy and outlook.

I want to reiterate our strategic priorities, but also want share with you some progress we have made and then discuss plans for the coming financial year.

We are making progress on all 4 of our strategic priorities.

On the product portfolio, we have almost completed the rationalisation of SKUs by 30%. This will enable optimal use of the manufacturing facility, lead to further automation and ultimately drive margin improvement.

Secondly on key products, we launched new products at the IDS trade show early this year and expect these to contribute to sales over the coming years.

Thirdly, as you would have seen recently, we announced that we have been awarded a $3m grant from the Commonwealth Government to undertake research on an amalgam replacement, partnering with several academic institutions over the next three years

Finally we have made investments in new machinery and, on product innovation, the research findings on Riva Star are compelling.

On the outlook, we expect to complete most of the rationalisation of the product portfolio during this financial year; Brazil manufacturing has commenced; we plan on investing a further $3m on new equipment to drive further automation and to aid new product development; and on sales growth we have started the new financial year seeing similar trends we have experienced in previous financial years.

That concludes my presentation and I am now happy to take your questions.

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QUESTIONS
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DISCLAIMER
THIS PRESENTATION CONTAINS SUMMARY INFORMATION ABOUT SDI LIMITED (SDI) AND ITS SUBSIDIARIES AND THEIR ACTIVITIES. THE INFORMATION IN THIS PRESENTATION DOES NOT PURPORT TO BE
COMPLETE. IT SHOULD BE READ IN CONJUNCTION WITH SDI’S OTHER PERIODIC AND CONTINUOUS DISCLOSURE ANNOUNCEMENTS LODGED WITH THE AUSTRALIAN SECURITIES EXCHANGE, WHICH
ARE AVAILABLE AT WWW.ASX.COM.AU.
THE INFORMATION CONTAINED IN THIS PRESENTATION IS NOT INVESTMENT OR FINANCIAL PRODUCT ADVICE AND HAS BEEN PREPARED WITHOUT TAKING INTO ACCOUNT THE INVESTMENT
OBJECTIVES, FINANCIAL SITUATION OR PARTICULAR NEEDS OF ANY PARTICULAR PERSON. BEFORE MAKING AN INVESTMENT DECISION, INVESTORS SHOULD CONSIDER THE APPROPRIATENESS OF THE
INFORMATION HAVING REGARD TO THEIR OWN INVESTMENT OBJECTIVES, FINANCIAL SITUATION AND NEEDS AND SEEK INDEPENDENT PROFESSIONAL ADVICE APPROPRIATE TO THEIR JURISDICTION
AND CIRCUMSTANCES.
TO THE EXTENT PERMITTED BY LAW, NO RESPONSIBILITY FOR ANY LOSS ARISING IN ANY WAY FROM ANYONE ACTING OR REFRAINING FROM ACTING AS A RESULT OF THIS INFORMATION IS ACCEPTED
BY SDI, ANY OF ITS RELATED BODIES CORPORATE OR ITS DIRECTORS, OFFICERS, EMPLOYEES, PROFESSIONAL ADVISORS AND AGENTS (RELATED PARTIES). NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, IS MADE BY ANY PERSON, INCLUDING SDI AND ITS RELATED PARTIES, AS TO THE FAIRNESS, ACCURACY, COMPLETENESS OR CORRECTNESS OF THE INFORMATION, OPINIONS AND
CONCLUSIONS CONTAINED IN THIS PRESENTATION.
AN INVESTMENT IN SDI SECURITIES IS SUBJECT TO INVESTMENT AND OTHER KNOWN AND UNKNOWN RISKS, SOME OF WHICH ARE BEYOND THE CONTROL OF SDI OR ITS DIRECTORS. SDI DOES NOT
GUARANTEE ANY PARTICULAR RATE OF RETURN OR THE PERFORMANCE OF SDI SECURITIES.
PAST PERFORMANCE INFORMATION GIVEN IN THIS PRESENTATION IS GIVEN FOR ILLUSTRATIVE PURPOSES ONLY AND SHOULD NOT BE RELIED UPON AS (AND IS NOT) AN INDICATION OF FUTURE
PERFORMANCE.
THIS PRESENTATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF SDI AND ASSOCIATED ENTITIES
OF SDI AND CERTAIN PLANS AND OBJECTIVES OF THE MANAGEMENT OF SDI. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, INCLUDING,
WITHOUT LIMITATION, THE TERMS “BELIEVES”, “ESTIMATES”, “ANTICIPATES”, “EXPECTS”, “PREDICTS”, “INTENDS”, “PLANS”, “GOALS”, “TARGETS”, “AIMS”, “OUTLOOK”, “GUIDANCE”, “FORECASTS”, “MAY”,
“WILL”, “WOULD”, “COULD” OR “SHOULD” OR, IN EACH CASE, THEIR NEGATIVE OR OTHER VARIATIONS OR COMPARABLE TERMINOLOGY. THESE FORWARD-LOOKING STATEMENTS INCLUDE ALL
MATTERS THAT ARE NOT HISTORICAL FACTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH BECAUSE OF THEIR
NATURE MAY CAUSE THE ACTUAL RESULTS OR PERFORMANCE OF SDI TO BE MATERIALLY DIFFERENT FROM THE RESULTS OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS.
SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON NUMEROUS ASSUMPTIONS REGARDING SDI’S PRESENT AND FUTURE BUSINESS STRATEGIES AND THE POLITICAL, REGULATORY AND ECONOMIC
ENVIRONMENT IN WHICH SDI WILL OPERATE IN THE FUTURE, WHICH MAY NOT BE REASONABLE, AND ARE NOT GUARANTEES OR PREDICTIONS OF FUTURE PERFORMANCE. NO REPRESENTATION OR
WARRANTY IS MADE THAT ANY OF THESE STATEMENTS OR FORECASTS (EXPRESS OR IMPLIED) WILL COME TO PASS OR THAT ANY FORECAST RESULT WILL BE ACHIEVED.
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF THIS PRESENTATION AND TO THE FULL EXTENT PERMITTED BY LAW, SDI AND ITS RELATED PARTIES DISCLAIM ANY OBLIGATION OR
UNDERTAKING TO RELEASE ANY UPDATES OR REVISIONS TO INFORMATION TO REFLECT ANY CHANGE IN ANY OF THE INFORMATION CONTAINED IN THIS PRESENTATION (INCLUDING, BUT NOT
LIMITED TO, ANY ASSUMPTIONS OR EXPECTATIONS SET OUT IN THIS PRESENTATION).
STATUTORY PROFIT IS PREPARED IN ACCORDANCE WITH THE CORPORATIONS ACT 2001 AND THE AUSTRALIAN ACCOUNTING STANDARDS, WHICH COMPLY WITH THE INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS). UNDERLYING PROFIT IS CATEGORISED AS NON-IFRS FINANCIAL INFORMATION AND THEREFORE HAS BEEN PRESENTED IN COMPLIANCE WITH AUSTRALIAN SECURITIES
AND INVESTMENTS COMMISSION REGULATORY GUIDE 230 – DISCLOSING NON-IFRS INFORMATION, ISSUED IN DECEMBER 2011.
ALL FIGURES IN THIS PRESENTATION ARE A$ UNLESS STATED OTHERWISE AND ALL MARKET SHARES ARE ESTIMATES ONLY. A NUMBER OF FIGURES, AMOUNTS, PERCENTAGES, ESTIMATES,
CALCULATIONS OF VALUE AND FRACTIONS ARE SUBJECT TO THE EFFECT OF ROUNDING. ACCORDINGLY, THE ACTUAL CALCULATIONS OF THESE FIGURES MAY DIFFER FROM FIGURES SET OUT IN THIS
PRESENTATION.
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