Thank you for standing by, and welcome to the SDI Limited first-half FY21 results. 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, 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 Ms. Samantha Cheetham, Chief Executive Officer. Please go ahead.
Good morning, everybody, and apologize for the technical delay. Thank you for joining us on our half-yearly results investor conference call for financial year 2021. My name is Samantha Cheetham, the Chief Executive Officer, and with me today is John Slaviero, our Chief Financial Officer and Chief Operating Officer. The last six months began with incredible uncertainty, with the pandemic taking hold globally. As we moved into the first quarter in the new financial year, we began to see several key regions emerge from the harsh lockdowns that affected the dental industry. We initially saw a catch-up in demand that had been put on hold, and then gradually we began to ramp up production to meet the return of strong demand.
While not uniform, as you will see when we talk about the regions, we have finished the year with strong momentum and are pleased to report a record first-half profit for the group. The comparable period from FY20, as you may recall, was a particularly strong six months, with record sales for a first half. This half, despite not all regions returning to normal, has been particularly pleasing. With the remaining regions showing signs of recovery, we are confident for the rest of the financial year. As I've done previously, I always like to recap from where we come from, particularly for those that are less familiar with our business. Having been established in 1972, we have built this business into a successful manufacturing company, where today we are exporting to more than 100 countries. Underpinning this success has been our continuing focus on research and development.
Through this, we have developed new and innovative products that meet the needs of our customers. Let me now turn to the agenda for today's presentation. I'll begin with a summary of the last six months, then spend some time talking about the product categories and the key geographies we operate in. I will then turn over to John, who will run through the financials before returning to me to talk about our strategy and the outlook for the remainder of the year. Let's begin with a summary of the last six months. I'm now on slide four. As mentioned in my opening remarks, this was a record half for the group, with net profit after tax up 30.9% to AUD 4.6 million, in line with our trading update given last month. The first-half sales were weaker, down 8%, compared to last year's record results.
Importantly, a key region, the U.K., was very weak, and direct exports from Australia were down materially. Gross margins continue to be a strong feature, reflecting product mix, but also from the regional exposures and were in line with the prior period when adjusting for currency. As always, costs were well managed, with year-on-year operating expenses down 12.9%, driving EBITDA performance up 21.8% on the prior period, despite some uneven performance in certain key regions. I'll spend some time talking about the product performance on the next slide, the demand catch-up I spoke about was evidenced with our whitening products up 19.3% in local currency, aided by new products and some targeted marketing activity. Pleasingly, the board has rewarded shareholders with an 11.1% increase in the dividend for the first half, with a fully franked dividend of AUD 0.015 per share. Let's now turn to the product categories.
I'm now on slide six to talk about the product performance. As mentioned, the category highlight for the last six months was the whitening category, up 19.3% in local currency. We saw strong demand supported by further initiatives, including the release of a new Pola Light and an investment in rebranding the complete range. Another highlight, although the smallest product category, was equipment, with good traction of the Radii Xpert curing lights for dentists. The take-up has been impressive and drove a strong outcome for the period. While the aesthetics category on the face of it appears to go against the trend in this half, with sales down 7.3%, this category was impacted by the poor U.K. market and slower direct exports from Australia. We saw strong performance from those regions where lockdowns were eased, including Australia, North America, and parts of Europe.
Finally, the amalgam product continues its recent trend, although the trend was accentuated by government restrictions in some regions and slower government tender activity as a result of the pandemic. Turning to the geographies. Slide eight breaks down the sales by business units as disclosed in our accounts. Sales by business unit in the six months to December 31st reflect the regional differences we saw in government policy in response to the pandemic. The European unit was down 6.9% in local currency and overshadowed by the U.K., which was down 41.7% due to restrictions and the challenges with Brexit. Brazil, while up 3.1% in local currency, was down 27.7% in AUD, reflecting the devaluation of the Brazilian real. As shared at the AGM, the review of this country is now complete, with the implementation of the strategy currently in progress.
This change will remove some of the volatility in currency we have experienced. Importantly, the restructure sets the business unit up with a lower cost base. For a more detailed look on what's going on in the region, let's look at customer behavior by region, shown on slide nine. This slide shows the regions where sales were in AUD. Key regions of the Americas, Asia, Pacific, and Europe, excluding the U.K., performed well, as mentioned previously. This performance was a function of the different approaches by government on the restrictions imposed in these regions and the lifting of some of the restrictions in others. The performance also highlights the demand catch-up when dentists return to normal operation and bodes well for the remainder of the year. I will now hand over to John to talk through the financials.
Thanks, Sam. I am now on slide 11, the profit and loss statement. As was mentioned by Sam, sales declined 8% in the period compared to a record first half 20, underpinned by demand in key regions, offset in part by government restrictions. Gross product margins in Australian dollars fell by 1.3% to 64.9%, but when adjusting for currency movements, were in line with the previous corresponding period. Total operating expenses in Australian dollars decreased by a pleasing 12.9% when compared to the previous corresponding period, after adjusting for currency and government assistance programs. Finally, following the devaluation of the Brazilian real, we incurred an AUD 700,000 realized currency loss. Getting to balance sheet on slide 12. The company's net cash position increased by AUD 4.9 million. Debt was eliminated, and we have an AUD 10 million headroom in unused bank facilities.
Inventories were well managed, with a fall of AUD 2.6 million, underpinning a strong cash flow performance for the half. Finally, as we mentioned, our investment in research and development continued. Turning to cash flow statement on slide 13. The increase in cash was driven by strong operating performance of the business over the period, with the lower payments and receipts reflecting the level of activity in some regions. The payment of dividend reflects the strong net cash position and the board's commitment to shareholders. In this period, we were the recipient of the JobKeeper in Australia, which ensured that we retained our staff in the period and avoid alternative strategies to manage costs. I will now hand back to Samantha to run through the strategy and the outlook for the coming financial year.
Thanks, John. Turning to our strategic priorities. Our new product development is focused on our highest margin products, being aesthetics and whitening. Consistent with this focus, we continue to look at further manufacturing efficiencies where possible through automation or simply doing things smarter and driving our sales and marketing teams to prosecute sales in our markets. Secondly, we have an ongoing commitment to R&D, with plans to release one to two products per year. SDI's amalgam replacement product remains on schedule to be released in 2023. Finally, we are undertaking a comprehensive review of our financial results will follow similar trends to previous years, highlighting strong growth in both the aesthetics and whitening products and a continued decline in amalgam products.
While the outlook remains uncertain with logistic challenges in some markets and uncertainty on some ongoing government restrictions, we are quietly confident that the trends we have seen in the first half of the year will continue into the second half. Thank you for listening to our presentation. I will now turn to the operator to moderate for your questions.
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 two. If you're on a speakerphone, please pick up the handset to ask your question. We will now pause momentarily to allow questioners to enter the queue. Once again, if you wish to ask a question, please press star one on your telephone. Your first question comes from Scott Milson with Milson Capital. Please go ahead.
Hi, Samantha. Could you just give us a bit more detail about the review of the footprint in your manufacturing, please?
Certainly, Scott. We're looking right now and scouting out the idea to perhaps move to a greenfield site. We're really on stage 1, just looking into all costs and ideas and plans. Certainly for the future, we're really looking to improve our efficiencies so
I think, Scott, you've been to SDI's R&D, and I think you might remember there's lots of rooms here and there that probably aren't the most efficient in terms of production flow.
Okay. Thank you. Second question, just for John, on the accounts. I note that you've stated that AUD 2.4 million received from JobKeeper. In the notes to account, there's a figure of AUD 3.26. Can John just clarify the difference?
Yeah
Sure, Scott. The AUD 2.4 was the physical cash received. The balance between the AUD 2.4 and the AUD 3 million is what's in our accounts. The AUD 3 million is in our accounts, but AUD 2.4 is the physical cash received.
Thank you.
we've got the balance of that after balance date. I should also mention that of that AUD 3 million, about roughly about 50% goes into the valuation of our goods because it relates to our factory. A bit more than 50%, actually, probably closer to 55%, 60% goes into the valuation of our goods, because it supplemented our production workers' wages, and then the other 40% is against operating expenses.
Thank you. Your next question comes from William Hanna with JANA. Please go ahead.
Hi, Samantha and John. Just wanted to question the AUD 700,000 loss from the Brazilian real. I know there's currency exposure to all different types of countries and continents, but is there any kind of hedging activities or expectations in the future that limit currency losses in the future?
Yeah. Look, we can't hedge the Brazilian real. It's not a traded currency. Any sort of protection from that point of view is extremely expensive.
Part of the restructure is, which we're implementing, is dealing with Brazil in AUD and selling over there in BRL. That will take out quite a bit of exposure of the intercompany transaction, which we deal in BRL. We expect that to be on board around the 1st of July to start that as the final stage of our restructure. We believe that exposure will be quite significantly reduced.
Okay. Thank you.
Your next question comes from Jeffrey, a private investor. Please go ahead.
Hi there. My question is in regards to the almost 13% operating expense reduction that you experienced this past. Just wondering, is that, or is any of that an ongoing savings that you guys have found? If not, how should we think about the cost going forward for the next six ?
Yeah, look, Jeffrey, look, it's a difficult case. I don't believe that once COVID and the pandemic's totally gone from the world, I don't believe that that will continue, that savings. It will continue for the half of the full year, it really depends on what's happening. As you understand, we're not traveling. There's no exhibitions. Certain people are still on reduced work hours. Probably a better guide is to go back to the previous financial year, not the 2020, the 2019, if you're looking at the trending expenses. It's very difficult to compare 2020 with 2021. Especially in the last quarter of this financial year, when the last quarter last year hit us dramatically and really knocked us about.
Yeah. Most of it is, I guess, COVID related, and you're thinking none of it will be an ongoing saving? I'm thinking, for instance, office space.
No. We own our premises here in Bayswater, there's no rental here. We only have rental in the three overseas offices, which are not material. We've certainly cut the rental in our Brazilian operations. Once again, when you're dealing with Brazilian real, it's not that material. I don't see any savings from that point. There might be some, nothing material. Yeah.
Okay. Thanks for that.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We'll now pause another short moment to allow questioners to join the queue. Your next question comes from Brendan Harrington with Harrington Partners. Please go ahead.
Oh, hi, John, Samantha. Great result in the circumstances. Just wanted to maybe hear from yourself, John, a bit more. I see the receivables have blown out a little bit and just wondering with the ongoing Brazilian restructure, are we putting up any provisions for that or?
Yeah.
What sort of-
Look, part of the audit program is they look at our receivables very closely and, yeah, we've had provisions already in our accounts for any doubtful debts. The receivables, when you say blown out, what's compared to the previous year or? Compared to June. It's certainly increased since June because our sales activity, if you remember, the last quarter of last financial year, our sales were virtually flat. As the sales get back to normalized, our debtors will go up.
Okay. All right. With the Brazilian restructure, what sort of costs are you expecting to make that?
The cost to do the restructure?
Yes.
Look, it's fairly immaterial. There's a bit of legal cost there. There is not too much else cost. The most cost we've incurred is legal advice, because Brazil's legal system and their corporation law is so much different to ours. This branch structure that we're looking at is relatively new in their equivalent to our corporations area. It's only been allowed in the last year or two. Prior to that, there was no such structure, so we're taking advantage of it. There's been probably around, possibly around AUD 50,000-AUD 100,000 in legal costs.
Okay. I see. Maybe yourself, Samantha, just looking at the very strong growth there in Australian domestic sales, do you feel as though that's something that will continue? If you've managed to, obviously, I imagine people here haven't had anywhere else to turn. Do you think that's sustainable?
No. Look, I think that the growth won't continue at that level. As this question, when the JobKeeper finishes, perhaps less people will go to the dentist. People have been investing in their house and themselves, so that's really why the great increase has happened then. Look, I think we'll still have the double digits, but not as high as that.
Okay. Thanks, guys.
There are no further questions at this time. I'll now hand back to Ms. Cheetham for closing remarks.
Thanks, Ashley. It's fabulous to hear of all the vaccine roll-outs happening around the world, especially in our key markets. We're beginning to see most of the regions open up, and that's really exciting. The dentists globally seem to be getting back to normal. Like what happened in Victoria in the last five-day lockdown, each week can change. There's been certainly uncertainty. Look, I look forward to meeting some of you in the next few weeks for further discussions. Thank you very much for listening here today, and have a lovely day.
That does conclude our conference for today. Thank you for participating.