Ann: Half Yearly Report and Accounts December 2015, page-17

@Fire Bull,

"How do you calculate GP% of 68.2%?"

You need to strip D&A (including the deemed apportionment of the $0.6m that relates to the impairment) from Cost of Goods Sold. I don't consider Gross Profit to be representative if it includes D&A. Some people deduct D&A. It's a style thing.

But the point is that - no matter how you do treat it - the trend in GP Margins is the same.


In terms of the US issue, specifically why the past half was so sluggish...yes, my understanding - not arising out of this result - but based on a discussion I had with one of the company directors after the full-year result last year, was that the reason that JH2015 was so very strong was that customers were a tad overstocked in the northern hemisphere summer (JH15 US Revenue was a record, if I remember correctly (of over $11m, cf. DH15 of $8.3m and JH14 of $9.4m), and the contribution from the US in JH15 was $0.76m, up 77% on DH15 and up 18% on JH14) and I assumed at the time that was likely to reverse somewhat and to affect DH15's result.

More generally, you raise some good points, specifically in relation to how long is enough time for the new products to demonstrate traction. I don't know the answer to that. I don't think anyone does.

But what I do think is that whatever SDI's ultimate marketing strategy in the US market will be, it will always be a bit player. However, the restorative market in the US is quite substantial, at around $1.0bn (of which SDI has less than a paltry $20m). So I think that, to succeed, SDI doesn't need to be a gorilla; all it needs to do is to be nimble enough to operate under the radar as a niche operator and to merely jag additional teeny, thin slithers of that growing market. If it just achieves that, then the growth impact on the overall company will be decent enough.


"Finally, it is all very well saying that SDI is changing from selling commodity type products (amalgam) to differentiated products (non-amalgam) and hence improving its pricing power, but how differentiated are these products really?"

You are right; any brand resonance certainly isn't to quite the same level as a Gucci or Coca Cola. But the scope for some degree of differentiation is a lot more than it is for mere amalgam which is - literally - an industrial age commodity.


"Based on the number of companies winning Dental Advisor Awards this year it looks like there are lots of businesses out their that, like SDI, are pouring money into R&D. Isn't there a risk that this leads to an arms race where everyone is spending lots of money bringing out improved products and no one can establish a market leading position for any length of time?"

Possibly, but without wanting to be glibly dismissive of it, I think that is the kind of broad argument of caution that one can make about just about any small company trying to get ahead in any industry.

It is hard to know whether an arms rate that will dilute the hell out of returns will end up being the end game.

All I know is what I can observe, and what I observe is a company that has increased its revenues, organically, by some 70% over the past 12 years (corresponding to ~5%pa CAGR), without any recourse to shareholders, generating modest double-digit ROE (even though the conversion into profitability has been less consistent, but it has generally marched in an upwards direction).

And that period of time has coincided with some significant changes with which the business has had to contend.

So I think they are doing something right, and it is difficult for me to predict what might happen to end that reasonably favourable trend.

Being a big believer in precedent, I certainly am not able to invest on the basis of actively forecasting revenue growth to stall and decline in future years.

Don't get me wrong: copious tomes written on SDI don't correlate to a must-own stock with an excessive huge exposure of one's personal wealth.

For context, I have a little over 1% of my total investable capital in SDI.