Sarine Technologies Ltd reported that its revenue remained flat during the year ended December 31, 2018 despite challenging conditions in the industry, but its net profit rose by 32%, boosted by lower overall expenses. Releasing its financial results for Q4 and FY2018 yesterday, the Company said it expects adverse conditions to persist in 2019.

Elaborating on the figures, Sarine said that revenue for FY2018 remained stable at US$ 58.5 million (FY2017: US$ 58.6 mn), of which approximately 50% came from recurring revenue business activities. Polished diamond retail-related revenues grew just under 15% and contributed over 2% of overall revenue. With stable revenue and lower overall expenses, the Group posted a 32% increase in net profit to US$ 7.6 million (FY2017: US$ 5.8 mn) during the year.

The Company said that it delivered 20 Galaxy® family systems to customers in Q4 2018, comprising 16 Meteorite™ models, 3 Galaxy® systems and a Galaxy® Ultra system, taking its total installed base to 410 as at 31 December 2018.

Bolstered by its growing base of Galaxy® family systems, the Group achieved a record quantity of 12 million stones scanned in FY2018 despite lower volumes of rough stones entering the pipeline during the year. This marks a significant 20% improvement over the previous record of 10 million stones scanned in FY2017, Sarine reported.

However, the Company noted that during Q4 2018, sentiments in the diamond industry midstream continued to be impaired by uncertainties stemming from the impact of trade tariffs on consumer spending in China, credit tightening by Indian banks, Indian Rupee exchange rate volatility and the "legitimisation" of lab-grown diamonds (LGD). Besides weaker demand for capital equipment in the quarter, under challenging industry conditions, the Group also registered lower recurring revenues due to reduced quantities of rough diamonds entering the pipeline and the seasonal slowdown in scanning activities during the Indian Diwali holiday period.

As a result, Group revenue declined 6% to US$ 12.2 million in Q4 2018 from US$ 12.9 million in Q4 2017. On lower revenue, gross profit fell 11% to US$ 7.5 million and gross profit margin eased to 61% due to a change in product mix and additional costs associated with the newly opened Sarine Technology Laboratories. Although general and administrative expenses remained stable, the Group incurred higher sales and marketing expenses to support increased business activities in the retail diamond market. With lower gross profit and higher operating expenses, the Group recorded a lower net profit of US$ 0.1 million in Q4 2018 under challenging business conditions.

Sarine said that despite the prevailing negatives in the diamond industry midstream, and the likelihood that adverse sentiments will persist into FY2019, it is encouraged by the record level of scanning activities due to additional sales of inclusion mapping systems to Indian manufacturers.

Also there is good traction for its Sarine Profile™ solutions for the retail online and in-store polished diamond trade, especially in the APAC market, Sarine said, with presence now in over 1,200 retail outlets. Expansion has continued into new geographies such as India's domestic market, Australia, the United Kingdom and Poland. There has also been keen interest in the Sarine Diamond Journey™ provenance solution and Sarine Technology Lab AI-based 4Cs grading, with initial retail traction and imminent launches scheduled in China, Hong Kong, Japan and Thailand.

“The Group’s active marketing efforts have resulted in higher market penetration for Sarine Profile™ throughout the APAC region and elsewhere. We are pleased that our newer initiatives for the polished diamond trade are also gaining momentum,” commented Mr. David Block, CEO of the Group.

He added that there have been customers for the AI-based 4Cs grading in Japan, China, Hong Kong and Israel, while the market for the Sarine Diamond Journey™ has expanded in Japan, China, Thailand and Israel. “Notably, our Israeli customers are prominent midstream suppliers to retail outlets in China, Taiwan, Singapore, Malaysia and the United States. Our marketing team is currently working closely with additional customers at various stages of adoption and launch,” Block stated.

The Company also reported that many leading midstream suppliers of polished diamonds are joining the Sarine Diamond Journey™ traceability paradigm, allowing Sarine to collect and store their relevant data and imagery during the various stages of transition from rough to polished stones, so as to be “Journey-ready”. This will empower them to offer potential retail customers this service and to enable the retailers to handily subscribe to the Sarine Diamond Journey™ based on data already stored in Sarine’s cloud repository. The growing database will help to strengthen the value proposition of Sarine’s polished diamond solutions and will in turn contribute to the Group’s recurring revenue stream over the longer term, the Company pointed out.