How Will SDI Limited Navigate Amalgam Decline Amid Acquisition Talks?

Financial Performance Overview

SDI Limited (ASX: SDI) has released its half-year results for the six months ending 31 December 2025, revealing a nuanced performance marked by steady sales growth but pressure on profitability. The company’s net profit after tax (NPAT) declined slightly by 2.0% to $3.75 million, or by 15.2% to $3.25 million when excluding a one-off $0.5 million doubtful debt provision. Sales revenue rose 2.7% to $52.9 million, supported by strong demand in Australian direct exports and the Middle Eastern markets.

Underlying EBITDA fell 9.4% to $7.8 million, reflecting margin pressures and increased operating expenses, which rose 3.9% excluding the doubtful debt provision. Despite these headwinds, SDI improved its gross product margin by 210 basis points to 65.6%, driven by operational efficiencies and favourable currency movements.

Product and Regional Dynamics

The company’s product portfolio showed divergent trends. Aesthetic products continued to gain traction, with sales up 4.5% in local currency across all regions, reflecting SDI’s strategic focus on this higher-margin segment. Whitening products experienced a slight decline overall, impacted by a resolved registration issue in the EU but buoyed by a 17% increase in Australian direct exports.

Conversely, Amalgam sales suffered a significant 23.1% drop, largely due to the EU ban effective 1 January 2025 and weakening demand in North America, where Amalgam still accounts for over 20% of sales. This decline was only partially offset by growth in other product categories, underscoring the challenges SDI faces in transitioning away from legacy products.

Regionally, Australian sales, including direct exports, grew 11.9%, driven by Middle Eastern demand, while North American sales declined 9.2%, and European sales fell 2.5% in local currency, affected by regulatory and market factors. Brazilian sales also declined due to deliberate shipment delays amid customer payment issues.

Strategic Initiatives and Outlook

SDI is actively investing in its future growth and operational resilience. The company is progressing plans to relocate manufacturing operations to a newly acquired six-acre property in Montrose, Victoria, with construction expected to start in April 2026 and completion targeted for December 2027. This move aims to enhance manufacturing and logistics efficiencies, supported by a $26 million investment in construction and refurbishment.

Automation is another key focus, with recent acquisitions of high-speed production machinery already delivering efficiency gains and further equipment on order to expand capacity. SDI also plans to launch one to two new products annually, concentrating on aesthetics and whitening categories, including the 'Stela' product designed to compete broadly in the aesthetic dental market.

On the governance front, the company has established an internal ESG working group and engaged consultants to develop a sustainability risk framework, reflecting growing investor and regulatory expectations.

Potential Acquisition in Play

In a significant development, SDI is in advanced discussions with a global dental materials producer regarding a potential acquisition via a scheme of arrangement. This transaction remains subject to customary conditions including regulatory approvals from the Foreign Investment Review Board, foreign regulators, shareholder consent, and court approval. The outcome of these talks could materially reshape SDI’s future trajectory.

Meanwhile, the company maintains a stable balance sheet with $4.6 million in cash, reduced debt by $0.9 million, and access to substantial unused credit facilities, positioning it well to support ongoing investments and navigate market uncertainties.