Thank you for standing by, and welcome to the SDI Limited FY 2024 half-year results presentation. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Samantha Cheetham, CEO. Please go ahead.
Thanks, Travis. Good morning, and thank you for joining us for our first half FY 2024 results presentation. My name is Samantha Cheetham, the Chief Executive Officer, and with me today is John Slaviero, our Chief Financial and Operating Officer. Pleasingly, strong revenue growth has continued into this financial year, achieving another record half-sales result. The half saw solid revenue growth and supported by ongoing expense control and impressive product margin improvement, setting up a strong base for the second half of the financial year. We have continued to gain market share growth supported by our reliable supply of quality dental products to our customers. Now let's look at today's agenda, page two. I will begin the presentation with our performance highlights, which will include a sales breakdown by category and business unit, the current product trends, and sales by region.
I will then turn over to John, who will run through the financials before returning to me to outline our key business updates that have occurred throughout the half before concluding with our strategy and outlook. I'm now on page three. As mentioned, the first half of FY 2024 was a record sales half for the group, with total sales of AUD 52.2 million, up 3.5% on the prior corresponding period. This was driven by strong growth in most regions. Gross profit margin increased 530 basis points to 61.5%, driven by strong performance in our higher margin Aesthetics product categories and the continued moderation in logistics costs. EBITDA increased 48.9% to AUD 9 million, with strong growth in the first half largely due to improved gross margin performance and strong expense control.
A final dividend of AUD 0.015 per share was maintained, with net profit after tax of AUD 3.7 million, an increase of 37% on the prior corresponding period. In terms of business updates, we have upgraded the warehouse at the new Montrose site and successfully relocated our warehousing, with the project on track. The operational teams continue to be hard at work, focusing their efforts on securing European regulatory requirements for dental materials. We are confident in how the process is tracking and embrace the high barriers to entry and competitive advantages that these registrations will provide us. Stela, a posterior restorative product that forms part of our aesthetic product range, is in its early stages of sales, with industry feedback extremely positive so far.
Finally, automation will also be a key focus for improving our manufacturing efficiencies in the business moving forward, with a number of machines on order for 2024 expected to continue driving operational efficiencies. Let's now turn to sales by business unit. I'm now on page four. This slide shows sales by business unit. The strong business unit sales performance reflects strong European growth and favorable currency movements. The Australian unit sales, which also captures the Australian direct export markets, was down 0.9% in the first half of 2024, with some inconsistent ordering patterns that are affected by customer import licenses, payment terms, and credit limits. The North American market was down 3.5% in local currency, reflecting a decline in Amalgam sales, representing 28.9% of North American total sales. A cyber attack on a major distributor, now resolved, also affected sales in this region.
The European unit sales were up 6.9% in local currencies, driven by strong demand in most European markets. Brazilian sales decreased 20.3% in local currencies due to a major distributor reducing its inventory, with sales expected to normalise in the second half of the financial year. Exports from Brazil were also down in the half. Now onto our category overview on page five. This slide details our sales by category. In local currencies, aesthetic sales continued to show solid growth of 5% in the first half, with contributions across all business units apart from Brazil. Growth in Aesthetics was largely driven by market share gains, supported by the release of new products in prior periods gaining momentum in the market. We saw a modest decline in Whitening product sales of 0.6%, reflected in most regions apart from Europe, where sales were up 3.6% and North America up 1.9%.
Equipment, which is largely a complementary product and represents our smallest product category, decreased 7.7% in local currency across all markets. Finally, Amalgam decreased 17.1%, declining in most markets after an abnormally strong period in the prior periods due to the withdrawal of two major competitors and government tenders in the Middle East. I will now talk to the product shift away from Amalgam in the next slide, page six. The following slide continues the sorry, shows the decline in Amalgam sales that has occurred now for more than a decade. SDI around this time is heavily sorry, heavily focused its efforts towards Aesthetics and other products, which have grown strongly in the period. Over the last 10 years, Aesthetics, Whitening, and Equipment have generated revenue CAGR of 11.06% versus Amalgam at negative 2.89%.
This product shift seen over the last 10 years is key to the strong improvement in our gross margins, with these generally higher margin products. Looking ahead, the United Nations have planned that dental amalgam products will be phased out by 2030. Now turning to the sales by region on page seven. This slide shows where the sales have occurred, with the sales by region in Australian dollars. Strong growth in Asia-Pacific and European markets were aided by strong demand for aesthetic products and favorable currency movements. The large decline in the South American markets reflects the decreased sales in the Brazilian market and timing issues in the other key markets, with Middle East and Africa flat for the half. I'll now hand over to John to talk through the financial performance on slide eight. Thank you, John.
I'm now on page nine. Thanks, Sam. Turning to slide nine, which is as Sam mentioned earlier, the first half saw record revenue with 3.5% sales increase and improved gross profit margins, driven by favorable product mix and exchange rates. Product margins increased by 530 basis points to 61.5%, driven by growth in Aesthetics products and further normalizing of logistics costs. Growth in Aesthetics reflects market share gains and, pleasingly, our newer products released in the last two to three years have seen positive sales momentum in the market. Logistics costs continue to fall, getting back to pre-pandemic levels, and we remain committed to ensuring that our service levels with customers are maintained. We are being rewarded with market share gains as our costs continue to normalize, and we expect to continue to see reward from this strategy. I will now turn to slide 10.
EBITDA increased by 48.9% to AUD 9 million, underpinned by gross margin improvement. Operating expenses were up 4.2% in Australian dollars and 1.4% after adjusting for currency movements. Included in operating expenses is an impairment of AUD 700,000 relating to properties in Australia and the Brazilian operations. Adjusting for this and currency variation, expenses actually decreased by 1.6%. Across the operating expense category, inflationary pressures while moderating are still a feature. I'll now turn to slide 11. The first half of financial year 2024, operating cash flow was very strong at AUD 7.9 million, driven by improved product margins and good expense control. Net investing activities of AUD 5.4 million represents continued investment in plant equipment, including the refurbishment of the warehouse in Montrose and product development. We maintained strong financial flexibility with cash of AUD 7.1 million, low leverage with AUD 6 million of headroom under current bank facilities.
I will now hand back to Sam for the business update.
Thanks, John. I'm now on slide 13, operational update. Most recently, we have relocated our warehouse to the new Montrose site. During FY 2023, we invested AUD 2.5 million, upgrading the 4,000-square-meter warehouse. This is the first step in the complete relocation and provides additional warehousing space, allowing us to continue to grow while we carefully plan and execute on the longer-term project of transitioning our manufacturing to Montrose. As previously mentioned, Stela continues to receive great feedback from industry key opinion leaders. Although at the early stages, we're excited about Stela's progress so far. Stela has been now launched across Australia, the U.S., Brazil, and other export markets, with repeat orders coming through. We know with time and education that the future prospects of Stela are both promising. We have continued to invest in automation to improve manufacturing efficiencies and capacity.
The table on this slide details the machines we have invested in. All machines have a remarkable short estimated payback with our composite syringe machine already in use. Following changes in the registration requirement in Europe on dental materials, we have been working hard to apply for the new MDR European registration for SDI's products. The process is complex. However, our team has worked tirelessly and done a wonderful job managing the registration process to ensure we meet the due date. SDI welcomes stringent registration processes globally. We are confident our manufacturing practices and the products we have to meet regulatory requirements. These regulations place a valuable barrier to entry for the industry. I will now move onto ESG, page 14. Now an update of our ESG roadmap I've shared with you previously.
We believe in managing our environmental, social, and governance risk positions for sustainable growth at a corporate and product level. While these factors have always been a focus for SDI, we are pleased to have recently formalized our ESG roadmap, which has been developed in line with our overarching corporate strategy timelines, FY 2024 to FY 2027. FY 2024, we will be establishing the foundations for a best-practice approach to ESG. FY 2025, we will be ensuring compliance with the expectations of our various stakeholder groups. FY 2026 and 2027, we will be enhancing our performance to effectively manage risk and drive value. We are currently in the process of completing a number of assessments in the early stages of our ESG roadmap. This is a topic that is of increasing interest and importance to our stakeholders and, in many respects, considered a minimum operating standard for today's organizations.
We look forward to sharing our journey and progress with you. Now to the strategy on page 16. Moving to the update on our future manufacturing plans for the Montrose site. In August 2022, following an in-depth review of our company footprint, we purchased the 6-acre Montrose property for AUD 19 million. Now that we have completed stage one of the plan, moving our warehousing to the new site, we are excited to progress with stage two, building a new facility and transitioning our manufacturing to the new site. This is a major transformational project for our business, one we are planning carefully. We will continue to update our shareholders with progress and plans. At this stage, we can share the following. We believe the total project will cost approximately AUD 60 million, providing an expected pre-tax return on investment of greater than 20%.
Of the total AUD 60 million cost, land and buildings are estimated at AUD 45 million, which includes the AUD 19 million purchase price. The new production machinery is estimated at AUD 15 million. We strongly believe that the project will get us to AUD 200 million of sales capacity with a new warehouse production space, a state-of-the-art facility with new machinery driving greater efficiencies. On slide 17, you can see an approximate timeline of the project in Montrose. We're excited about the project, including the capacity it will add and the efficiencies it will generate for the business. Now onto the strategy and outlook, page 18. The company's strategic priorities remain. Aesthetics and Whitening continue to be our focus for new product development.
Stela and Stela 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 giving its unique characteristics. We continue to focus on improving operational manufacturing efficiencies via automation and Project Montrose, expanding our sales capacity to AUD 200 million. We have been focused on meeting the updated regulatory requirements in Europe and securing registration and have made substantial progress. We are confident we will continue to meet these requirements and deliver high-quality products to the market. On this slide, I've highlighted the three core strategic priorities for SDI. Priority one is to ensure high-quality market-leading products, which we will continue to deliver through innovation and growth of key categories. Priority two is to ensure business excellence and will be done so through innovation in manufacturing processes and our supply chain.
Lastly, priority three is to ensure premium positioning and awareness within the community, ensuring our products are approved through strict regulatory rules, demonstrating to customers that our products adhere to the highest of quality and standards. We are confident that these three pillars in our core strategy will hold us in a strong position to continue our growth into the future. Thank you for your participation today, and I'll now turn to questions. So back to Travis. Thank you, Travis.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're using a speakerphone, please pick up the handset to ask your question. Once again, to ask a question, please press star one on your phone. The first question today comes from Mark Topy from Select Equities. Please go ahead.
Good morning.
Good morning, Mark.
Good morning, Mark.
Just a question, just on the Amalgam, that timeframe to compulsory. In terms of the pressure that's going to put on and how does it speed up the take-up of your new product, do you think? Can you give us some sort of maybe comment around that, how you see that?
Well, the timeline goes to 2030, which is some years away. We've got on all our Amalgam boxes going out by Stela, and Stela will take up some of that. It will also take up market sales in the other categories that we're already in, but will be able to infiltrate those categories even more. So in terms of how much, as the Amalgam goes down and the other categories become more important, Stela will take up some of it. If Amalgam drops today.
Sure. Yeah. Why would a dentist continue to use Amalgam, I suppose? Is it cost, or why wouldn't they switch ahead of the, I suppose, the mandatory?
Amalgam is extremely strong. We still use it in Australia, U.S., etc., some key markets. Insurance is a big thing. Some insurance companies in America pay for the Amalgam for certain procedures only. It just lasts a long time, and it's very, very cheap for the dentist to put in compared to the other aesthetic products.
Right. Got it. Okay. And then the timing around Europe, have you got any sense or can you give us any sense of how long this sort of process might normally take? Is it a 12-month thing, or? I know it's difficult to predict, but the approval process in Europe.
Oh, sorry, the registration. Well.
Registration, rather. Yeah. Sorry. Yeah.
Yeah. We'll be able I mean, the deadline for making sure all the products are either approved or continue to be allowed to be sold is May this year, and we're fine with that. We believe we'll get that through. But we have about three years, I believe, to put the documents in, so we are totally covered. We're not worried about it.
Yeah. I'm just trying to get a sense of the timeframe around that that you might expect to get a registration done?
I would say by the full year for next year, you will or even the half-year, actually, you'll know that we've got the registration.
Okay. Terrific. And I guess in this consumer environment, which sort of is global, do you get any sense of any pushback on consumers' spending and maybe delaying? Or it doesn't seem evident from the numbers at all. Is there any sort of consumer response in the dental space to the sort of economic backdrop and consumers tightening up on spending?
Up and down in each country, I think the consumers aren't buying the high-end things like crowns and those things that go to the lab. So the fillings that we do is the second-best alternative. Some of the tooth whitening people could say, "Oh, we're putting that off, and that's more of a discretionary spend." It doesn't seem to be affecting us too much. We do hear that some areas dentists aren't as busy as they used to be, but we're not too concerned about that yet, Mark.
Yeah. Very good. And then the Montrose numbers look impressive, I guess, 20% return. Can you maybe flesh out, again, the timeframe on that AUD 200 million? It's almost like a sales target in some ways. And also on the slide, you don't talk about automation in terms of the new product machinery, but I'm assuming there's a fair automation involved at the new site as well.
Yeah. Well, even on this existing site where we are, we're bringing in new machines, so that will lower costs. This current site is very inefficient to manufacture, so the new site will certainly make that more efficient. Plus, we'll bring even more new machines in the new site as well, so combination of those two. In terms of when we'll get to the AUD 100 million, we're not giving that up, but it won't take 50 years to get there like the first 100.
That's good news because I was just going to say that return on investment, 20%, is that a three-year kind of timeframe or any sort of comment around that, or?
It was based on a four-year timeframe.
Four-year.
Yeah. Based on efficiencies that we'll get and the extra machinery, which will give us more capacity and more efficiencies. So it's based around all of that scenario.
Very good. Just remind me, I might have forgotten the existing site. Your thoughts around that, Sal, or? I'm just trying to recall.
Yeah. Once we've built the new warehouse and refurbished the warehouse we currently have in Montrose, we'll slowly move production over. And as we do that, we can sell off the buildings here. So a lot of our buildings here are on separate titles, so we can't sell them off individually. We just recently sold one for AUD 1.3 million, which we did a sale and lease back for three years with an option of another two. So we can slowly do it. But that building hasn't settled yet. It'll settle at the end of April.
Right. Okay. Okay. Very good. And then lastly, no comments around guidance the second half, but can we assume sort of a continued sort of trend that we're seeing in the first half?
Well, we haven't made any guidance, Mark. So yeah, I guess that's if you look at the sales trends, yeah, I think Amalgam will continue to decline and Aesthetics will continue to increase. Yeah.
Great. All right. Thanks for that.
Thank you. Once again, to ask a question, please press star one on your phone. The next question comes from shareholder Peter Storer. Please go ahead.
Hello, Sam and John. Congratulations on a great half-yearly result. Good to see the strong increase in gross margin and costs are well controlled. I've just got a question on the impairment on Australian buildings. Can you explain why there's an impairment on Australian buildings and whether there's likely to be any further ones in the future?
Well, there won't be any further ones because the ones that we've still got we've had them for a long time. Impairment related to a property we bought around the corner that we were going to develop that property, but then this bigger one came up, this six-acre one, and it was a better decision to redevelop that. So we sold the one around the corner, and that's where the impairment was, mainly around stamp duty and a few other costs there.
Right. Okay. Thanks. Logistics costs have come down. Is there any room for those logistics costs to come down any further, or are we basically back to the you said you were back to the pre-COVID levels? Is that basically where we're going to end up?
Yeah. It's getting closer to the pre-pandemic levels. I don't know whether we'll actually it'll get very close to the pre that's what we're seeing, so. And just generally, shipping is more reliable until we're not air freighting. So all of those types of issues have sort of got back to the pre-pandemic levels. And also the timing of the shipping. It doesn't take three months now. It's six weeks. So I think during the pandemic, we had one container stuck there in the U.S. at the ports for 12 months. So all those issues are gone, which saves us a lot of costs here.
Red Sea, does that affect you at all, the issues going on in the Red Sea?
I haven't heard yet. I must admit, I haven't heard anybody sort of highlight it in our export department. So yeah, I've probably asked them some questions. But normally, if there's something that is an issue, I hear about it, but I haven't heard anything at the moment. Yeah.
Okay. Thanks very much. That's all from me.
Okay. Thank you.
Thank you. Once again, to ask a question, please press star one on your phone. We'll pause for a moment to allow parties to enter the queue. Once again, if you would like to ask a question, please press star one on your phone. At this time, we're showing no further questions. I'll hand the conference back to Sam for closing remarks.
Thanks, Travis. Thank you, everybody, for listening. We're certainly very excited for the next 12 months. We've got a lot happening. There's super opportunities in the marketplace, and we can't wait to go and get them. So thank you, everybody. Thanks, Travis.