Thank you for standing by, and welcome to the SDI Limited FY 2023 Results Conference Call and Webcast. 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 phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Samantha Cheetham, CEO. Please go ahead.
Thanks, Harmony. Good morning, and thank you for joining us for our FY 2023 results presentation. My name is Samantha Cheetham, the Chief Executive Officer, and with me today is John Slaviero, our Chief Financial Officer, Chief Financial and Operating Officer. Pleasingly, strong revenue growth momentum has continued in the financial year 2023, and we have achieved another year of record full year sales results. This is an amazing achievement. We've continued to gain market share growth, supported by our reliable supply of quality dental products to our customers. While this has meant some additional costs and some inefficiencies short term, we remain confident that this strategic decision is driving our top line growth. Operating expenses have increased to support increased sales volumes, coupled with some inflationary pressures.
As these costs further normalize, we are confident that we will deliver longer-term profitability for the group. Now let's look at today's agenda. Next slide, please. I'll begin the presentation with our performance highlights, which will include a sales breakdown by category, business unit, and region. I'll 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 financial year, before concluding with our strategy and outlook. Next slide, please. As I mentioned, FY 2023 was a record sales year for the group, with total sales of AUD 107.9 million, up 13.44% on FY 2022. This was driven by strong growth in all product categories in most regions, with increase in market share.
Gross profit margin increased 100 basis points to 56.8, reflecting price increases and some relief from lower logistics costs. Notwithstanding, logistic costs remained elevated. EBITDA increased 9.6% to AUD 16.2 million. The growth in sales and product margin were partly offset by increases in our operating expenses. We will provide more detail on these costs, but in summary, as we return to normal conditions, travel and marketing costs increased, and some inflationary pressures were evidenced across the cost base. A final dividend of AUD 0.0175 per share was paid, will be paid, which was in line with the previous financial year. In terms of business updates, we made the strategic decision to purchase a new Montrose site that will, in time, become our new manufacturing home, providing for increased efficiencies and far greater capacity.
Currently, the site will be utilized for much needed warehouse space while we carefully plan for the build and fit-out stage. This is a very exciting development for SDI, which we will share more details on later in the presentation. Product development continues to be at the core of the strategic priorities. We have been very focused on our core ranges within aesthetics and whitening categories. I'm very pleased with the two product launches this year. First, Stela, a posterior restorative product that forms part of our aesthetic product range. For those less familiar with this innovative product, Stela is unique in the market as it provides all the upside of amalgam in terms of strength and ease of application, but also the added benefit of being tooth colored.
We have launched Stela this year in many markets, except Europe, and are already receiving very positive feedback. We are excited about Stela's growth prospects. However, it is key to point out that we are in the very, very early stages of Stela's marketing and awareness campaign efforts, which takes time with a requirement to educate and receive endorsements from key opinion leaders. We also launched Riva Cem Automix, another aesthetic product across several of our key markets, and again, pleased with the feedback and progress to date. Automation is a key focus for improving our manufacturing efficiencies. This year we purchased a new high-speed production machine. This machine will increase its syringe output on four of our products, moving from 1 syringe to approximately 8 syringes per minute.
We also have other machines on order for delivery in the next 12 months. Let's now turn to the sales by business unit. Next slide, please. This slide shows sales by business unit. The strong business unit sales performance reflects the return to normal operating conditions across the globe. The Australian unit sales, which also captures the Australian direct export markets, was up 11.4% in FY 2023. Australian direct exports increased by 7.1% when adjusted for local currency movements. Direct exports growth was driven by tenders in the Middle East and strong growth in the Asian region. Australian domestic sales were up 1.7%, with growth moderating following an elevated base from prior periods.
The North American market was up 7.3% in local currency, reflecting the strong increase in amalgam sales driven by the exit of two major competitors in the amalgam market. Aesthetics grew 12.8% in the US, reflecting the gradual transition to aesthetics products, with new products in the market gaining traction. The European unit sales were up 10.9% in local currencies, driven by strong demand in the UK, where conditions have normalized. Restorative sales increased 13.7% in local currencies, reflecting overall market growth and aesthetics products gaining traction. Now on to our category overview. Next slide, please. This slide details our sales by category. In local currencies, aesthetic sales continued to show strong growth of 13% in FY 2023, increasing across all business units.
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. Modest growth in whitening products of 1.2% was driven by increases in sales across all markets apart from Europe. Equipment, which is largely a complementary product, decreased 10.7% in local currency across all markets except for Australia. As a largely complementary product, equipment represents only 6% of our total sales. Finally, Amalgam showed strong increases in the European market, led by increased demand in the UK. The demand for Amalgam in North America continues to be strong, representing 30.1% of its total sales.
Although there is very little sales focus on Amalgam, but this category increased by 17.8% in local currencies on prior calendar period, and now represents 17.6%, or AUD 18.9 million of total sales. This result was also driven by the successful government tenders in the Middle East. Next slide, please. This slide shows where sales, where the sales have occurred. The sales by region are in Australian dollars. As you can see, strong growth occurred across most regions, underpinned by the normalizing operating conditions, continuing success with new product releases, and the gains we have achieved in growing market share. The Middle East and Africa region was particularly strong, with sales up 23.1% on FY 2022, supported by the success in gaining government tenders, as I've previously mentioned.
According to a dental industry research paper, Fortune Business Insights, the overall dental market is forecast to grow at a CAGR of 7.9% out to 2029. While I recognize that we are a subset of the overall dental industry, we are part of a resilient and growing industry that is supported by strong industry drivers. These drivers include the increasing prevalence of dental ailments, rising oral and dental hygiene awareness, rising demand for aesthetic dentistry, and a growing and aging population seeking dental treatment. We are particularly pleased with our sales growth across the globe. In every region, we outgrew the forecast dental market of CAGR 7.9%. I'll now hand over to John to talk through the financial performance on slide eight. Thank you, John.
Thank you, Sam. Could we move to slide number eight, please? Thanks, Sam. As Sam mentioned earlier, sales were up 13.4%, underpinned by strong demand in most regions. Our core category division, Aesthetics, performed strongly up 13% year-on-year. Growth in aesthetics was largely driven by market share gains and pleasingly, our newer products that have been released in the last two-three years, seeing positive sales momentum in the market. As Sam mentioned, its timeframe for product momentum is typically for dentistry products, where the education and endorsement of key opinion leaders take time. Product margins increased by 100 basis points to 56.8%, driven by moderately improved logistics costs and price increases.
SDI exports to over 100 countries and enjoys, and the margins enjoyed in these regions are not uniform, which impacts the overall outcome. Additionally, strong sales growth in low-margin amalgam tenders impacted overall margins. With respect to logistics costs, although we are seeing some improvement, costs do remain elevated from pre-pandemic levels. We remain committed to ensuring our service levels with customers are maintained. We are being rewarded with market share gains as a result, as costs continue to normalize over the next 12-24 months. We will continue to see rewards from this strategy. We will now turn to the FY 2023 EBITDA discussion. Next slide, please. EBITDA increased by 9.6% to AUD 16.2 million, underpinned by gross margin improvement.
Offsetting the gross profit growth were the increase in operating expenses, some of which relate to the business running back to normal operating conditions. Total operating expenses in Australian dollars increased by 19.6%. After adjusting for currency movements, operating expenses increased by 16.8%. Adjusting for asset impairment and interest expense, operating expenses increased by 14%. Across the operating expense category, a notable increase was travel, up 50.1% on last year. Promotional and marketing expenses were also up 19.6%. Together, these expenses reflect the business returning to normal operating conditions. As we once again are able to travel to trade shows and connect with our teams across the globe, with the increase in travel costs, we are being selective in which trade shows we attend.
However, attending is critical to support the launch and awareness of our products. Inflation also is having an impact across several operating expenses, including utilities, wages, and we also continue to invest in IT, which includes both projects and costs relating to cybersecurity. We have provided more details on some key expense trends in the next slide. Please, next slide, please. We have included this slide in the presentation to provide greater detail on our key costs within business. As we all know, COVID-related disruptions impacted our cost structure, and as we move back to normal operating conditions, we are seeing a normalizing of the cost base, albeit some inefficiencies still remain. Stepping through the costs. As you can see, employee costs as a percentage of sales sits at about 37.6% in FY 2023.
In FY 2021, our employee cost percentage reduced to 36.5%. However, this was largely attributable to JobKeeper. In FY 2022, as JobKeeper rolled off and we worked hard to ensure inventory supply to our customers, we increased production staff, which led to employee costs increasing to 40.9% of sales. As conditions improved throughout the FY 2023 year, employee costs reduced to 37.6% of sales. While absolute wage-related expenses have increased year-on-year, largely due to wage inflationary peer pressures, increased super and payroll tax, we have been able to maintain a stable workforce, supported by automation activities to increase volumes and deliver a record sales result. A fantastic outcome. Marketing and travel are the key cost components. As COVID hit, dental trade shows were on hold, travel was restricted, and overall marketing and traveling expenses were reduced.
In FY 2021, we were at our lowest point with marketing and traveling expenses, 11.2% of sales. As we move into FY 2022 and 2023, you can see marketing and travel expenses trending back to a more normalized, more normalizing to 14.7% in FY 2023. Reflecting borders reopening and dental trade shows recommencing, attending these events, as I've indicated, are an essential part of dental marketing activities, driving awareness of our products across the globe. That said, given the increased costs of attending, we are being more selective in which trade shows we attend. Lastly, freight costs. As the COVID hit, our freight costs increased significantly.
In FY 2020, we sat at 2.2, at 2.9%, and by FY 2022, freight represented 6.8% of our sales, almost a 4% increase. Freight and logistics costs were extremely challenging, not only from rate increases, but availability and reliability. As we have previously commented on, to ensure supply to our customers, we had to opt for air freight to ensure timely management of inventory. Conditions have vastly improved, and as you can see, we were at 4.8% of sales as at FY 2023. This is still above our historical low of 2.9, evidencing that costs are not back to normal, however, certainly easing. Improved frequency and reliability have also enabled more shipping by air freight utilization.
We anticipate that freight will continue to ease into FY 2024. I will now move on to a cash flow and balance sheet. Next slide, please. FY 2023 operating cash flow was very strong at AUD 12.1 million, driven by a AUD 14 million increase in customer receipts year-on-year. This was due to increased sales and timing of payments. Net investing activities of AUD 32 million represents the AUD 24.3 million investment in our new property sites in Montrose and Bayswater. While previously, we had indicated the intention to sell the new Bayswater site, as we work through the planning and the development of the new Montrose site, which Sam will share more details on shortly, we have extended the assessment and planning to both property sites.
We are undertaking a detailed and thorough assessment with careful consideration of our longer-term manufacturing needs. We financed the purchase of the new property site by bank debt, the total debt of AUD 24.1 million, and the net debt position of AUD 18.1 million. Our resulting leverage remains conservative at 1.12 times net debt to EBITDA. Our working capital position has improved throughout the year with our net working capital as a percentage of sales, reducing to 32.2% from 38.5%. Our inventory levels have reduced from historical highs as the need to overstock warehouses across the globe have eased with the improvement in the supply chain condition. Overall, our cash position decreased by AUD 1 million to AUD 6 million.
I also note, in attached as part of the presentation, there are appendices on various financial, figures that you might want to refer to. I will now hand back to Sam. Next slide, please.
Thank you, John. I'm now on slide 13, Operational Update. As we've touched on several times, at the end of August last year, we announced the purchase of a six-acre site in Montrose. We will move into the site next month to accommodate our much-needed warehousing requirements. However, longer term, the strategic plan is for expanded manufacturing capacity, which I'll detail shortly. As we've also mentioned throughout the presentation, trade shows are back up and running, and with SDI recently attending a major trade show in Germany. This was a fantastic event. There was a genuine, renewed energy and was a platform to demonstrate our innovation and products. Our much-talked-about innovative product, Stela, has now been launched across Australia, the U.S., and Brazil. We are already receiving positive feedback on Stela, and we are very excited by the future prospects of this product.
This is a wonderful restorative product that will meet the market needs of our amalgam category. We are well planned for executing on amalgam transitions over the coming years, as well as promoting this product to the wider posterior restorative market. In my opening remarks, we remain committed to the investment in automation to drive manufacturing efficiencies. For example, we've recently purchased a high-speed production machine, which I mentioned before, will increase syringe output, moving from one to approximately eight per minute. This is a great example of operating efficiencies, efficiencies with a short-term payback, and adds to our ability to manage new and existing product growth. Finally, R&D continues to be a key focus to drive innovation and improvements on our product suite. I'll now move on to ESG. Next slide, please.
Along with many other organizations, we realize the importance of ESG and constantly assess ways we can improve our impact on the environment and help support our communities. While relatively early in our journey, as a board and management team, we are committed to making significant progress in the coming years, and we'll share our progress over time. We've recently appointed ESG consultants to assist us in building an ESG framework. In our early-stage discussions, we understand that three things must be addressed in our ESG roadmap. Culturally, as an organization, we must be all aligned with ESG practices embedded across the organization, being driven by the staff with oversight from management. This roadmap will then be communicated to stakeholders to ensure that employees, regulators, customers, and shareholders understand SDI's corporate goals and expectations.
From an operational perspective, ESG needs to be at the forefront of everything we do going forward and integrated into the procedures we undertake as a business. Next, we will move on to slide 16, Strategy and Outlook. Next slide, please. I'll start the strategy section with an update of our new warehouse facility in Montrose. The company has reviewed its footprint and has purchased a six-acre site for AUD 19 million, which has an existing 4,000 square meter warehouse. We're expecting to begin relocating the current warehouse in September 2023, with planning underway to redevelop the new site to relocate the current manufacturing operations in the next two-three years. By 2024-2025, we plan to start building the new warehouse facility and hope to have this completed by 2025-2026.
Refurbishment and the movement of our current manufacturing departments to the new site will also be complete by 2026, 2027. With substantial investment made on this upgraded facility, we believe the return on investment based on pre-tax earnings on the total investment of the project will be greater than 20%, with total capital expenditure on the project at AUD 60 million. With the relocation of the company's current warehouse, much needed space for manufacturing will be released to accommodate new machinery and significantly improve our manufacturing capabilities for new and existing products. Next slide, please. Here we can see an approximate timeline of the project in Montrose. We're excited about the move and all the efficiencies that will come with an upgraded facility. Now on to the strategy and outlook. Next slide, please. The company's strategic priorities remain.
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, you all throughout the year of the positive progress of these products, particularly Stela, given its unique characteristics and applicability for replacing amalgam sales over the next three-five years. European regulatory requirements have changed for restorative products, and we will be investing time this financial year to meet the updated regulatory requirements and securing registrations. At SDI, we embrace stringent regulatory requirements as these provide high barriers to entry and a competitive advantage. We continue to focus on improving operating manufacturing efficiencies via automation and new site relocation. As I mentioned, we've installed the new syringe machine and have several new machines on order for delivery over the next 12 months.
As I've just detailed, Project Montrose will be a key project for our business, transforming our manufacturing capabilities for years to come. I look forward to keeping you all updated on the plans and progress here. With respect to outlook, we are seeing some elevated costs with respect to logistics and ongoing inflationary pressures. We have seen some easing throughout FY 2023, and as conditions continue to normalize, we are focused on capturing the upside of our investment in sales, whilst focused on cost management initiatives. Thank you. I'll now pass you back to the moderator and move to Q&A. Next slide. Sorry.
Thank you. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type it into the Ask a Question box. We'll pause for any phone questions to register. Once again, to ask a question, please press star one. Thank you. The first question comes from John Galt, a private investor. Please go ahead.
Oh, hi. Just a question on regards to the 1.4-acre adjoining property, which was purchased prior to the property in Montrose. Just wanted to go, I think it was made mention that it hasn't been sold yet, it might be retained. Just wondered if you could give a bit of a further explanation of what you intend to do there, because obviously there's very high holding costs in holding a property when it can be used to retire debts. So just any thoughts you could provide on that, please? Thanks.
Yeah, Sam, I can answer that.
Mm-hmm.
Yes, look, you're quite right. Originally, we had it up for sale. But just recently we've got the fairly high-level view with plans on the Montrose site and what we can move there, and we're still working through that. One of our—a couple of our manufacturing departments, which are here, one is glass, is fairly ... It can contaminate other areas. So we're still analyzing whether we put those, that one and also our molding department over at Montrose, or maybe keep it separate and maybe redevelop this existing 1.4-acre property to move those two areas there. So then that would release down the track, when we totally move, we could easily sell where we are now. Does that sort of...
So basically, we're still reviewing the whole overall plan.
Thank you. Your next question comes from Stephen Scott from PAC Partners. Please go ahead.
Just a quick question on the new machines, the faster machines. What do they- what does that faster capacity mean for you?
The faster capacity of the new machine?
The syringe machines, yeah.
Oh, the syringe machine. That means that we can lower our cost base, certainly, meet demand, because that syringe filling machine will do four or five different products, which will enable us to get close to adjusting time on those two. It'll definitely increase our margins, because we'll be able to put more volume through the plant. So yeah, it's all part of improving our margins and delivering quicker to the customer and not have to hold so much safety stock on hand.
Sure. Thank you.
Thank you. There are no further phone questions. I'll now hand back to the speakers to address your webcast questions.
Yes. Sam, would you like me-
Sure. You got it.
We've got one question. Congratulations on a good result. What net additional spend is required for the new warehouse facility? The additional cost that where we're going to move in September, we've had to do bring that warehouse up to medical grade standard. And it's estimated that by the time we do finish and we have to put air conditioning in there, it'll be close to AUD 2 million that we've had to renovate that additional warehouse. Now, that's a 4,000 square meter warehouse. And our warehouse will stay there for the next two-three years. It may even roll over to four years, until we've got the other side of the site redeveloped.
Regarding the return on investment of greater than 20%, the assumptions behind that is the increased capacity we have to meet future sales. And therefore, you know, we allow-- and also the improvement in our margins. So that was, that was a, an income. What we've taken there, the cost, depreciation, interest costs. So we haven't taken the after-tax effect, and that's where we get the 20%, greater than 20%, ROI. I hope that answers your question. There are no more further written questions. So Sam, I might hand it back to you.
Thanks, John. Thank you, everyone, for listening today. You know, it's a very exciting future for SDI. We have a extremely dedicated team that work hard to, with all the projects we've got going on at the moment. Many of them will have great effects in the very short term and, of course, we're building for the long term. So, very exciting future ahead for SDI. Looking forward to seeing many of you in the next few weeks. I really am looking forward to get out of the office. So thank you very much, everyone, for listening.
Thank you.