"Do you have any opinion on the move away from amalgam materials to the glass/composite products? The company is not shy of stating that this is where they are achieving growth. Additionally, from a personal perspective - the latest research I have read would lead towards the composite products. In fact - I would not allow the amalgams to be used on me even if they were free!
But I am perhaps an overly paranoid health conscious consumer."
I think you've kinda answered your own question there. That's exactly why there is a push towards Composite and Glass Products (CIPs/GIPs). Its a natural industry evolution, driven by technological advancement.
But why I - as a shareholder - like this move towards more hi-tech products is because amalgam is really a commodity product, based on standard formulation of various metals (of varying nastiness, to which you allude... although amalgam has been the go-to solution for many decades without nay real problems, so I think your fears might be somewhat unfounded; refer http://www.epa.gov/mercury/dentalamalgam.html).
And because amalgam is a commoditised product that requires no real unique intellectual smarts to produce and market, a little operator like SDI really has no real competitive or scale advantages, other than maybe a bit of funky packaging.
In fact, having followed the company for many years without being a shareholder, one of the very things that stopped me from investing was that I was sure that SDI was going to at some stage have its behind handed to it on a plate in the amalgam space by one of the global gorillas, such as Bayer, J&J, Colgate Palmolive etc.
(Remember that this is a US$3.5bn global industry, and SDI enjoys less than 1.5% of it, so SDI is an absolute minnow...which is both a bad, and a good, thing.)
But what I like about the Glass and Composite Ionomer space is that it lends itself to innovation and the ability to conduct research and to develop differentiated and unique products. And when you produce something that is unlike anything else out there and is - hopefully - a superior product, you can be a greater architect of your own price list (i.e., enjoy some pricing power).
But don't poo-poo amalgam treatment too much; it is still a lot cheaper than ionomer products. In emerging markets affordable dental treatment is just starting to take off, and amalgams will therefore play by far the dominant role in dental treatment in these markets for many years still to come.
And that's a good segue into your second question which relates to the significance of the Brazilian infrastructure beachhead.
To this end your comment that "they seem to be confidently suggesting that the strategic advantage of this license is more than one might first assume" is not only most prescient, but also decidedly understated, I think.
This is a critically important development for the company, in my view, and on a par in significance even with the decision to produce ionomer products and the launch of the Riva product in 2004.
Which is why the company's board and management have been so hell-bent on chasing it so hard for so long.
At the risk of sounding dramatic, this is quite a seminal moment for the company because not only does it provide them with lower-cost manufacturing, but it does so in a part of the world that is the gateway to rapidly growing emerging markets.
SDI's supply chain is extremely long: Working-Capital-to-Sales is a painful 40% and Stock Turn averages just over 1.5x, making the incremental sales dollar a very capital-intensive one to procure.
These metrics will - with almost certainty - become less punishing in coming years due to the new manufacturing and packaging capacity in Brazil.
So its not just a margin thing; it's also going to be a driver of growth in sales volumes for the next 10 years in the western hemisphere.
Similarly, the upgrade and expansion of their Victorian facility will be geared to servicing the eastern hemisphere, i.e, Asia Pac.
Sadly, in both these geographies the western, sugar-laden diet is only starting to make its impact on the dental health of the broader populations. The good news is that SDI investing in increasing capacity to provide solutions to the problem.
Like I prefaced, the risk of sounding dramatic was clearly there.
(20min delay)
