Ann: Half Yearly Report and Accounts December 2015, page-30

Coltene, a Swiss competitor that is similar in size to SDI released their annual report on Thursday.

https://www.coltene.com/fileadmin/Data/EN/Financial_Reports/Annual_Reports/COLTENE_GB2015_en_web.pdf

From the report,

"World market volume of dental consumables grew at a low single-digit pace, in line with the trend from the past several years."

This suggests that the YOY growth rates achieved in local currency by SDI over the past 10+ years in all divisions are pretty strong (North America 6.5%, Europe 4.1%, Brazil 9.5%).

Coltene does not sell amalgams and restoratives make up just 25% of total sales compared to the majority for SDI. Coltene's restorative sales declined 6.3% in 2015 although this result was impacted by currency (Coltene are going through a similar phase to SDI a few years ago when the AUD was so strong). Despite this, SDIs performance compares favourably as they have achieved strong local currency growth in non-amalgam products over the past year.

Whereas SDI experienced an 18.1% growth in Brazil in local currency, Coltene suffered declines due to economic troubles in the region. I think this is further evidence highlighting the real progress that SDI is making in Brazil.

Like SDI, Coltene also mentioned de-stocking by dealers in North America so it is unfair to blame management for SDI's North American results since this is clearly outside of their control.

SDI's North American division has undergone a significant restructure around 12 months ago and due to the nature of the industry (conservative dentists, reasonably long distribution chain) it will take time for us to see the results of this. They have recruited a senior sales manager from one of their competitors so it is likely that he knows what he is doing.

Given the price of the stock, it is irrelevant whether SDI can compete with the likes of Dentsply. They will achieve decent growth from their tiny base simply by introducing new products (1-2 planned per year) without any of them needing to win significant market share. Meanwhile margins will continue to improve as the mix of amalgam steadily falls. This is enough for a very successful investment.

However, there is a real possibility that one or more of SDI's products wins significant market share due to their superior quality. Furthermore, as the stable of products grows it becomes increasingly convenient for dealers and dentists to deal with them.