Successive profit warnings ahead of SDI’s December half and June full-year numbers had investors on edge about the dental supply outfit’s final results.

But SDI’s (ASX:SDI) shares rallied late last week when full-year numbers were revealed — and there were no further nasty surprises.

SDI’s shares jumped 13 per cent to 62c on Friday.

For any small business, continued reinvention is the key not only to survival, but also success — and the same is true for SDI.

A steady slide in margins for its mainstay amalgam product — an alloy used to fill cavities — has prompted a big R&D program to develop new, higher margin products to secure its future.

Research and development is now running at around $3 million a year, with roughly one third written off annually and the balance capitalised.

With revenue running at around $75 million a year, research spending is a heavy, but essential spend, which is bringing with it some success, since amalgam sales now account for only around 30 per cent of revenue, down from closer to half a few years back.

New tooth-whitening products along with specialised equipment developed in-house is helping to offset the decline of the amalgam sales and helping to fatten margins.

“The mix of sales has shifted dramatically with amalgam down from 45 per cent to less than 30 per cent,” says chief executive Samantha Cheetham.

“The trend to lower amalgam sales will continue.”

New product launches

The big spend on research and development is giving the group one to two new product launches a year to help maintain sales momentum.

The role of new products in offsetting the decline in amalgam sales was apparent in the latest numbers with steady full-year revenues masking a large lift in sales of aesthetics products as amalgam sales continued to fall.

As revenues from amalgams continues to decline, this should open the door to new products driving rising revenue — depending on currency swings, since the bulk of revenues are generated offshore.

The exposure to currency movements was on display in its year-to-June numbers, with net profit down around a quarter since more than half of operating expenses are generated abroad.

SDI has a growing packaging business in Brazil, for example.

Declining borrowings and a rising net cash position has acquisitions on the agenda — although don’t expect any major moves.

“The board likes a debt-free scenario,” executive director John Slaviero says.

SDI’s shares closed at 62c on Friday, valuing the company at about $74 million. Shares have trade between 52c to $1.15 over the past year.

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