Ann: HY23 Investor Results Presentation, page-4

"So Revenue and Margins looking good but all a bit overshadowed by the fat lump of borrowings just landed on the Balance Sheet."

You must have been looking at a different company to me, because Revenue and Margins looked anything but good to me.

Adjusting for exchange rates, the growth in constant currency terms wasn't all all flash and and moreover the quality of the growth was poor, with out-performance coming mostly from amalgam sales, due to totally extraneous factors outside the company's control (i.e., the exiting from the market of two major competitors which was clearly unexpected by SDI management, judging by the discussion I had with them after the result).

As for operating margins, despite reasonably favourable exchange rates over the half, at 56.2% the GP margin was still well down on "normal" levels (+60%):



But that's the least of the issue (because its an outworking of factors largely outside of management's control - i.e., still-elevated freight and unplanned warehousing costs).

The part of the cost line over which management has control, ie, Cost of Doing Business, jumped a full 500bp as a function of Sales; to 44%, from 39% in pcp.

The net result is an Operating Margin looking decidedly sub-par:



"Consolidating their manufacturing and logistics footprint is probably a good thing but there's a few more moving parts than in earlier years."

Whether or not it is a good thing is moot, because if you had been paying attention, you would know that it was an inevitable thing because they were rapidly outgrowing the Bayswater operating foot print. And if you speak to SDI management, you'll find that they way they are thinking about transitioning to next-generation production facilities will in fact mean less, not more, moving parts.

As for your lamenting the "fat lump of borrowings that landed on the balance sheet", compared to many of the other alternative scenarios, what they are doing is eminently sensible and highly capital efficient.

What could easily have been a capital outlay amounting to several tens of millions of dollars (which would have certainly necessitated the calling in of additional equity capital), is now going to cost a mere couple of millions of dollars, which will not only avoid the need to raise additional equity but I'm delighted to say will also facilitate continued Board commitment to maintain, and even grow, dividends.

Having spent some time hearing about management's operating plan for the next five years, what I saw as one of the biggest risk to the company - i.e., the step-function scaling up of the factory - is no longer a major concern to me.

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