Aug 13, 2019

Sarine’s Q2 and H1 2019 Results Continue to Reflect Challenging Times, as Revenues Dip and Company Incurs Losses

Sarine Technologies Ltd, which recently announced its financial results for the second quarter (Q2) and half year (H1) ended 30 June 2019, reported a total revenue of US$ 11.597 million for Q2 2019 (Q2 2018: US$ 17.959 million) and US$ 22.519 million for H1 2019 (H1 2018: US34.620 million). This represents a fall in revenue of 35.4% for the quarter y-o-y and 35% for the half year y-o-y.

The Group incurred a loss from operations amounting to US$ 892,000 for Q2 2019, as against a profit of US$ 4.674 million achieved in the same period of the previous year. For H1 2019, loss from operations stood at US$ 1.717 million as compared to a profit of US$ 8.238 million recorded in H1 2018.

The total comprehensive loss of the Group for Q2 2019 was US$ 1.365 million as compared to a profit of US$ 3,633 million achieved in Q2 2018. For H1 2019, the Group’s loss amounted to US$ 2.676 million as against a profit of US$ 6.575 million recorded in the same period of the previous year.

“The Group’s operating environment remained difficult in Q2 2019,” Sarine said in a statement announcing the results.  “The level of midstream polishing activities continued to be restrained amidst industry challenges, namely, working capital issues faced by diamond manufacturers under credit tightening policies by Indian banks, dampened consumer sentiments in the Chinese market arising from the ongoing trade disputes with the US, as well as uncertainties surrounding lab-grown diamonds (LGD).”

However, Sarine pointed out: “On a sequential quarterly basis, overall revenue in Q2 2019 rose 6% over Q1 2019 revenue of US$ 10.9 million, and Q2 recurring revenues were 15% higher compared to Q1.”

Touching upon the achievements of the Group in the periods under review, Sarine recounted that during the quarter, the Group delivered a record 34 Meteorite™ systems to customers in India, bringing the total installed base of Galaxy® family systems to 477 as of 30 June 2019.

“However, the significant decrease in overall sales volume and change in product mix led to a 46% fall in gross profit to US$ 6.5 million and a lower gross profit margin of 56%,” Sarine explained. “Although the Group managed to trim research and development expenses as well as sales and marketing expenses, general and administrative expenses were higher due to additional third-party professional fees related to the trial phase of our patent litigation in India. Given reduced revenues and gross profitability, the Group registered a loss of US$ 0.9 million from operations. After accounting for income tax expenses, the Group reported a net loss of US$ 1.4 million in Q2 2019, of which approximately US$ 1.0 million were non-cash items.”

Talking about the decrease in revenue in H1 2019, Sarine said: “Overall polished diamond retail-related revenues were just under 3% of overall revenue in H1 2019. Due to decline in revenue and gross profitability under tough industry conditions, the Group recorded a net loss of US$ 2.8 million in H1 2019, of which approximately US$ 2.0 million were non-cash items.”

The Board has declared an interim dividend of US cents 0.50 per ordinary share for the half year ended 30 June 2019.

Turning towards its prospects in coming months Sarine said that despite the difficult market conditions, the Group “continued to see scanning activities at record levels, including days when the total number of scans exceeded 55,000”.

“Sarine has scanned over 50 million stones since the launch of our Galaxy® technology a decade ago. For the whole of 2018, we scanned 12 million stones but in H1 2019 alone, we have already scanned some 8 million stones,” commented David Block, CEO of the Group.

The Company said that interest in the Sarine Diamond Journey™ provenance (traceability) solution has “accelerated significantly” as evident by enquiries and actual implementations by leading luxury high-end industry players, mid-range retail chains and individual outlets.

“Besides comprising the most comprehensive, readily verifiable and tamper-proof information, with minimal overhead associated with its adoption, our solution provides unmatched visual/video means to promote the diamond's story, including an optional 3D-printed scaled model of the actual original rough diamond from which the polished gem was painstakingly derived,” explained Block.

Notably, Sarine’s long-time customer, New Art, has adopted and launched this new offering with a high-profile campaign in Japan. As major midstream polishers become increasingly aware of this new retail opportunity, more are enrolling into the concept to have their stones Journey™-ready.

"We will launch an integrated end-to-end solution, from mine to retail outlet, with a verifiable in-store validation procedure of the polished diamond’s provenance at the September Hong Kong show,” asserted Block.